Adam Grimes on Market Structure: Trading with the Trend

Understanding Market Structure with Adam Grimes

Adam Grimes emphasizes that understanding market structure is the foundation of successful trading. It's not about memorizing patterns, but about reading the story the market is telling. For Grimes, market structure is defined by the sequence of swing highs and lows (pivots). An uptrend is a series of higher highs and higher lows. A downtrend is a series of lower highs and lower lows. A range is a series of equal highs and lows.

Identifying Pivots

Grimes defines a pivot high as a high surrounded by two lower highs. A pivot low is a low surrounded by two lower lows. This is a simple, objective way to identify significant turning points in the market. These pivots are the building blocks of market structure.

Trading with the Trend

Once you've identified the trend, the highest probability trades are in the direction of that trend. In an uptrend, you should be looking for opportunities to buy. In a downtrend, you should be looking for opportunities to sell. Trading against the trend is a low-probability strategy that Grimes advises against.

Real-World Example: AAPL

Consider the daily chart of AAPL. You notice a series of higher highs and higher lows, indicating a clear uptrend. You would then look for a pullback to a previous pivot low or a moving average to enter a long position. Your stop would be placed below the most recent swing low, and your target would be the next logical area of resistance.

Entry Rules

• Identify the trend using pivot analysis.
• Wait for a pullback to a key support level (in an uptrend) or resistance level (in a downtrend).
• Look for a price action trigger, such as a bullish engulfing candle or a pin bar, to confirm the entry.

Exit Rules

• Take partial profits at a 1:1 risk/reward ratio.
• Trail your stop loss below the most recent swing low (in an uptrend) or above the most recent swing high (in a downtrend).
• Exit the trade if the market structure breaks down (e.g., a lower low in an uptrend).