Market Structure: How Smart Money Operates in Ranging Markets

Market structure is the foundation of trading, and understanding its key phases can significantly improve trade execution and risk management. Large players, often referred to as "Smart Money," strategically accumulate and distribute positions, influencing price movement within a range.

When the market is not trending, traders need to adapt by identifying range-bound conditions, liquidity deviations, and optimal entries. This knowledge allows traders to avoid false breakouts and position themselves with the institutions rather than against them.

Find below a breakdown of the key concepts of market phases, liquidity traps, and trading strategies tailored for sideways markets.

Terminology & Key Concepts of Range Trading

Accumulation

A phase where institutional traders accumulate long positions within a narrow price range. This typically leads to an uptrend, as buying pressure builds up before breaking out.

Key characteristics:

• Price consolidates within a defined range after a downtrend.
• Volume often increases, signaling Smart Money is accumulating.
• Fake breakdowns (deviations) may occur to shake out retail traders.
• Often followed by a breakout to the upside.

Distribution

The opposite of accumulation, where institutions distribute (sell) their positions. It generally leads to a downtrend as supply exceeds demand.

Key characteristics:

• Price stalls in a narrow range after an uptrend.
• Increased volatility with sudden fake breakouts.
• Smart Money offloads positions to retail traders at high prices.
• Often followed by a downward move.

Sideways Market (Range / Consolidation / Flat)

A range-bound phase where price moves within a horizontal structure, neither trending up nor down. These ranges often serve as accumulation or distribution zones before a breakout.

Deviation

A temporary price movement outside the range, designed to trigger stop-losses before reversing direction. Smart Money uses deviations to grab liquidity from trapped traders.

Market Phases: Accumulation & Distribution

Markets move through four primary phases:

1. Accumulation → Uptrend begins.
2. Uptrend → Price rallies as demand outpaces supply.
3. Distribution → Institutions sell positions.
4. Downtrend → Price declines as supply overcomes demand.

Since large players cannot enter or exit positions with a single order, they build positions over time within these phases. Recognizing these structures helps traders anticipate trend reversals and continuations.

Re-accumulation & re-distribution occur within trends and act as continuation patterns. These are smaller accumulations or distributions that allow Smart Money to add to their positions before resuming the trend.

Sideways Market (Range Formation)

A range forms after a strong impulse move, providing traders with defined boundaries for trading opportunities.

Identifying the Range:

• First boundary: Established at the end of the initial impulsive move.
• Second boundary: Formed after the correction phase following the impulse.
• Fibonacci Retracement Tool: Use 0, 0.5, and 1 levels to identify the range.
• Midpoint (0.5 level): A strong reaction here confirms a valid range.

Pro Tip: If the price moves erratically around the 0.5 level without clear reactions, the range may not be reliable—skip the setup.

Get more info and practical details from this webinar:

Deviation: Liquidity Grabs Beyond the Range

Smart Money manipulates prices beyond range boundaries to trigger liquidity before reversing. These deviations create high-probability trade setups.

Key rules:

1. A deviation above the range often leads to a move toward the opposite boundary (and vice versa).
2. Only enter after confirming the breakout's weakness:
3. Look for a lower timeframe structure break.
4. No confirmation = No trade.
5. Multiple deviations on one side usually indicate a breakout in the opposite direction.

Trading Strategies Inside a Range

A. Aggressive Entry

Enter directly on a deviation if a Point of Interest (POI) is nearby.

Look for:

• Lower timeframe structure break.
• Candlestick confirmation (e.g., strong rejection wick, engulfing candle).

The Take Profit strategy should follow these patterns:

• 80% closed near the opposite boundary.
• 20% left for a potential breakout.

This strategy is best for intraday trading and short-term setups.

B. Conservative Entry

Wait for the price to react to a POI beyond the range (Fair Value Gap, Order Block, liquidity pool).

Enter only after the price returns inside the range and confirms re-entry (e.g., retest of range boundary).

This method is usually preferred by swing traders or any other type of trader whenever trading corrections occur within trends.

Bottom Line

Sideways markets aren't random—they represent accumulation and distribution zones where Smart Money operates.

Key takeaways:

1. Deviations help YOU avoid liquidity traps and identify real breakouts. 
2. Using structure, Fibonacci, and LTF confirmations provides an edge in range-bound conditions.
3. A well-defined range, confirmed deviation, and POI = a high-probability trade setup.

Apply these principles and you’ll avoid common retail traps, and trade with the Smart Money instead of against it.