Dynamic Market Structure (MTF) - Dow Theory

Dynamic Market Structure (MTF)

OVERVIEW

This advanced indicator provides a comprehensive and fully customizable solution for analyzing market structure based on classic Dow Theory principles. It automates the identification of key structural points, including Higher Highs (HH), Higher Lows (HL), Lower Lows (LL), and Lower Highs (LH).

Going beyond simple pivot detection, this tool visualizes the flow of the trend by plotting dynamic Breaks of Structure (BOS) and potential reversals with Changes of Character (CHoCH). It is designed to be a flexible and powerful tool for traders who use price action and trend analysis as a core part of their strategy.

CORE CONCEPTS

The indicator is built on the foundational principles of Dow Theory:

• Uptrend: A series of Higher Highs and Higher Lows.
  
• Downtrend: A series of Lower Lows and Lower Highs.
  
• Break of Structure (BOS): Occurs when price action continues the current trend by creating a new HH in an uptrend or a new LL in a downtrend.
  
• Change of Character (CHoCH): Occurs when the established trend sequence is broken, signaling a potential reversal. For example, when a Lower Low forms after a series of Higher Highs.
  

CALCULATION METHODOLOGY

This section explains the indicator's underlying logic:

Pivot Detection: The indicator's core logic is based on TradingView's built-in

ta.pivothigh()

and

ta.pivotlow()

functions. The sensitivity of this detection is fully controlled by the user via the Pivot Lookback Left and Pivot Lookback Right settings.

Structure Calculation (BOS/CHoCH): The script identifies market structure by analyzing the sequence of these confirmed pivots.

• A bullish BOS is plotted when a new

  ta.pivothigh

  is confirmed at a price higher than the previous confirmed ta.pivothigh.
  
  
• A bearish CHoCH is plotted when a new

  ta.pivotlow

  is confirmed at a price lower than the previous confirmed

  ta.pivotlow

  , breaking the established sequence of higher lows.
  
  
• The logic is mirrored for bearish BOS and bullish CHoCH.
  

Invalidation Levels: This feature identifies the last confirmed pivot before a structure break (e.g., the last

ta.pivotlow

before a bullish BOS) and plots a dotted line from it to the breakout bar. This level is considered the structural invalidation point for that move.

MTF Confirmation: This unique feature provides confluence by analyzing a second, lower timeframe. When a pivot (e.g., a Higher Low) is confirmed on the main chart, the script requests pivot data from the user-selected lower timeframe. If a corresponding trend reversal is detected on that lower timeframe (e.g., a break of its own minor downtrend), the pivot is labeled "Firm" (FHL); otherwise, it is labeled "Soft" (SHL).

KEY FEATURES

This indicator is packed with advanced features designed to provide a deeper level of market insight:

• Dynamic Structure Lines: BOS and CHoCH levels are plotted with clean, dashed lines that dynamically start at the old pivot and terminate precisely at the breakout bar, keeping the chart clean and precise.
  
  
• Invalidation Levels: For every structure break, the indicator can plot a dotted "Invalidation" line (INV). This marks the critical support or resistance pivot that, if broken, would negate the previous move, providing a clear reference for risk management.
  
  
• Multi-Timeframe (MTF) Confirmation: Add a layer of confluence to your analysis by confirming pivots on a lower timeframe. The indicator can label Higher Lows and Lower Highs as either "Firm" (FHL/FLH) if confirmed by a reversal on a lower timeframe, or "Soft" (SHL/SLH) if not.
  
  
• Flexible Pivot Detection: Fully adjustable

  Pivot Lookback

  settings for the left and right sides allow you to tune the indicator's sensitivity to match any timeframe or trading style, from long-term investing to short-term scalping.
  
  
• Full Customization: Take complete control of the indicator's appearance. A dedicated style menu allows you to customize the colors for all bullish, bearish, and reversal elements, including the transparency of the trend-based candle coloring.
  

HOW TO USE

1. Trend Identification: Use the sequence of HH/HL and LL/LH, along with the trend-colored candles, to quickly assess the current market direction on any timeframe.
   
   
2. Entry Signals: A confirmed BOS can signal a potential entry in the direction of the trend. A CHoCH can signal a potential reversal, offering an opportunity to enter a new trend early.
   
   
3. Risk Management: Use the automatically plotted "Invalidation" (INV) lines as a logical reference point for placing stop losses. A break of this level indicates that the structure you were trading has failed.
   
   
4. Confluence: Use the "Firm" pivot signals from the MTF analysis to identify high-probability swing points that are supported by price action on multiple timeframes.
   

SETTINGS BREAKDOWN

• Pivot Lookback Left/Right: Controls the sensitivity of pivot detection. Higher numbers find more significant (but fewer) pivots.
  
  
• MTF Confirmation: Enable/disable the "Firm" vs. "Soft" pivot analysis and select your preferred lower timeframe for confirmation.
  
  
• Style Settings: Customize all colors and the transparency of the candle coloring to match your chart's theme.
  
  
• Show Invalidation Levels: Toggle the visibility of the dotted invalidation lines.
  

This indicator is a powerful tool for visualizing and trading with the trend. Experiment with the settings to find a configuration that best fits your personal trading strategy.