Market structure the ICT way
Lesson 03 · 5 min read · By DT Terminal
Mark swings by ICT's three-candle rule, grade them short, intermediate and long term, and tell a break of structure from a shift with displacement.
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Swing points by rule
Day 10, Market structure marked swings by eye. ICT makes the call mechanical.
A short term high (STH) is a candle whose high is above the highs of the candles on both sides. A short term low (STL) is the mirror. That is the three candle rule. New to candles? Day 2 covers highs, lows and wicks.
The rule needs the candle after the swing, so the newest candle on your chart is never a swing yet.
Short, intermediate and long term
ICT grades swings in three tiers, each built from the one below it.
- An intermediate term high (ITH) is a short term high with a lower short term high on each side.
- A long term high (LTH) is an intermediate term high with a lower ITH on each side.
- Lows mirror this: STL, ITL and LTL.
The tiers name the swing a move took out: "broke the ITH", not "broke a high".
Worked example
Example 01: Grading five highs
The worked example, with every number walked through, is in the app.
Break of structure and market structure shift
With the swings marked, two events matter.
A break of structure (BOS) is a move beyond a swing point in the direction of the trend. In an uptrend, that is a close above the last high. It says the trend is carrying on.
A market structure shift (MSS) is the first break against the trend. In an uptrend, that is a close below the last higher low, the low that launched the latest high. It is the first sign the trend may be turning, not proof that it has.
| Event | In an uptrend | What it suggests |
|---|---|---|
| BOS | A close above the last high | The trend continues |
| MSS | A close below the last higher low, with displacement | The trend may be turning |
A shift needs displacement
An MSS needs displacement: a strong, one way move, usually fast enough to leave a fair value gap, the three candle pattern from Day 12. A slow grind through the level does not meet the rule.
Market structure shift
With displacement, a slow break, and a wick
- Bearish shift
- Bullish shift
- Fair value gap
Bearish shift
an uptrend closes below its last higher low
Bullish shift
a downtrend closes above its last lower high
Shift with displacement
a fast close through, leaving a gap
Slow break
closes through, but no gap
Wick only
it closes back: no break
Worked example
Example 02: A shift with displacement
The worked example, with every number walked through, is in the app.
Whether displacement makes a shift more reliable is a claim no published study tests. Backtest it.
CHoCH, and wick or close
You will meet CHoCH, change of character. It is a Smart Money Concepts (SMC) community term, not core ICT vocabulary, for roughly the same thing as the MSS: the first break against the trend.
The more common mistake is counting a wick through a swing as a break. Decide once whether a break needs a body close beyond the level or only a wick through it, and keep that rule on every chart.
Go deeper
Some SMC teachers split the two, using CHoCH for the first warning break and MSS for the version confirmed by displacement. Neither usage is official, so write down the one you use. Most ICT based models use a body close plus displacement for an MSS.
Write your structure rules down
People mark swings differently, so write your rules down before you trade them: the swing rule, the tier you trade from, wick or close, and what counts as displacement.
Mark structure candle by candle in the backtester
GBPUSD on M15. As each candle prints, mark short term highs and lows, promote them when they qualify, and label every BOS and MSS by your rule.Write the shift as an entry criterion
Check yourself
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Five questions, one for each idea in this lesson.