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Market Structure EDGE

Lesson 10 of 13
Duration 4:48
Level Beginner
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Market Structure EDGE utilizes an analysis of supply and demand and US equity market structure to identify a series of trading ideas each day with defined entry and exit levels intended to increase the probability of making a successful trade.

Study Notes:

Market Structure EDGE is a software provider that uses defined analytical criteria to generate actionable trading ideas for users to consider from within a predefined universe of liquid stocks, offering the investor entry and exit ranges on a 1-5-day timeframe. Market Structure EDGE incorporates supply of and demand for stocks within the confines of the rules and mechanics of US equity market structure to identify trading opportunities considered as either Momentum or Low Volatility groupings. Stocks that exhibit volatility of at least 3% are defined as Momentum stock trading ideas. While those exhibiting volatility of less than 2.2% are defined as Low Volatility stock trading ideas.

From the New Window button in Mosaic, locate Discover under Information System and hover above the expansion arrow to the right. Click on Market Structure EDGE.

The sleek default display reflects trading ideas that fit under the Momentum category, or higher volatility. The default table display shows the stock’s symbol, prior closing price, market cap, average trading volume and sector.  Market Structure EDGE software looks for certain recurring conditions in the trailing 90-days to predict what might be possible ahead. The table will refresh with additional or new candidates between US market hours. There may be just a handful of trading ideas daily, or there could be several pages. Use the arrows in the lower right corner of the screen to tab between available pages.

Click the Low Volatility tab to see today’s trading ideas for stocks exhibiting lesser volatility over time.

Click the Probabilities tab to see the listed stocks displayed in bubble format, whose size is determined by mathematical probabilities.

Hover above the question-mark icons to learn more about the definitions.

Momentum Stocks:

For Momentum stock trading ideas, Market Structure EDGE screens for US stocks with minimum of $5bn market cap, 3% or more daily volatility, high liquidity and a divergent demand and supply pattern. Based upon analysis of 90-day trailing data the software calculates the odds of a 2% return within 1-5 trading days, generating a probability. The software generates an entry range as determined by down 50% to up 30% of its volatility. The exit range is 2% based upon a sliding scale.   

For Low Volatility stock trading ideas, the software uses the same universe, but seeks to identify stocks exhibiting less volatility and seeks half the return of momentum stocks. To meet the criteria, stocks must exhibit strong and stable demand according to the criteria set by the software. At the same time, supply should be declining.  

Back on the Momentum Table

The default sorting on the table is by company name. However, the table can be resorted by clicking on any column header. User may click on Probability or Volatility for example. Click through the stock’s symbol to learn more about the trading idea.

Users will see a Summary table with suggested Entry and Exit prices, which are relative to recent bid/ask price spreads. Probability of the price projection happening reflects the occurrence during the last 90-days. Below that user sees Market Structure’s Sentiment reading or its proprietary estimation of Demand during the last three months. Note the Demand line displayed in Green should be rising. Below is the Short Volume % Supply plot for the symbol, where supply should be falling to support the model criteria.

For a full explanation of the data and definitions, please see the Show Example Calculation button at the bottom of the page for a walkthrough.

Users should regularly monitor the trading ideas within the Discovery tool to familiarize themselves with the analysis and how the software works under dynamic market conditions.

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Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.

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