Market structure
Day 10 of 26 · 8 min read · By DT Terminal
Price moves in swings. Trend is how each swing compares with the one before, a break of structure confirms the trend, and a market structure shift is the first sign it has turned.
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Swing highs and lows
Price moves in swings. A swing high is a peak with lower prices on both sides. A swing low is a dip with higher prices on both sides. Trend is how the swings compare with the ones before.
Each swing gets a two-letter label: higher or lower than the last swing of its kind, then high or low.
| Label | Means | Seen in |
|---|---|---|
HH | Higher high: the peak is above the last peak | Uptrend |
HL | Higher low: the dip stayed above the last dip | Uptrend |
LH | Lower high: the peak failed below the last peak | Downtrend |
LL | Lower low: the dip went below the last dip | Downtrend |
A swing is only a swing once price has moved away from it. Until then, the latest high or low can still be extended.
Three kinds of trend
An uptrend makes higher highs and higher lows. A downtrend makes lower highs and lower lows. A range makes neither: its highs stall near resistance and its lows hold near support.
Support and resistance are zones, not single prices: areas where buyers or sellers have shown up before.
Go deeper
A downtrend is the uptrend picture upside down. In the range above, the three highs stop a few points apart inside the same band, and so do the lows.
Break of structure and the shift
In a healthy trend, each new high breaks the one before. That is a break of structure (BOS): a break with the trend. In a downtrend, each new low is the BOS.
A market structure shift (MSS) is a break against the trend. In an uptrend the key level is the last higher low, the low that launched the latest high. A candle closing below it is often the first sign of a reversal.
Flipped, in a downtrend the key level is the last lower high. A close above it is often the first sign that sellers have lost control.
DT Terminal ChartsEURUSD · H1BOS, then MSSChange of character, and reading the chart
When a candle closes below the last higher low, buyers have failed to defend it, and the chart is no longer making higher lows. Many traders call the same break a change of character (CHoCH); some keep MSS for a CHoCH that comes with a strong, fast move, so check which meaning a source uses.
The chart is an illustrative EURUSD H1 sample. On the way up, a candle closes above the high at 1.09082, a BOS that confirms the uptrend. The pullback after it holds at 1.08663, the last higher low, and price makes one more high at 1.09344. Then a candle body closes below the last higher low, at the marker labelled MSS, and the lower high and lower low that follow confirm the turn.
The rules
The whole idea in one table. Read the bearish column for an uptrend that may be ending, the bullish one for a downtrend.
| Rule | Bearish MSS | Bullish MSS |
|---|---|---|
| Before | Uptrend: HH and HL, each high breaks the last (BOS) | Downtrend: LL and LH, each low breaks the last (BOS) |
| Key level | The last higher low | The last lower high |
| The shift | A candle body closes below the last HL | A candle body closes above the last LH |
| Not a shift | A wick below that closes back above | A wick above that closes back below |
| What follows | A lower high, then a lower low | A higher low, then a higher high |
Market structure
With the trend, against it, and a wick that is neither
- Break of structure
- Bearish shift
- Bullish shift
Uptrend
key level: the last higher low
Downtrend
key level: the last lower high
Break of structure
a close beyond the last high, with the trend
Market structure shift
a body closes through the key level
Wick only
it closes back: not a shift
Count the close, not the wick. A wick through the level that closes back is a rejection, often a sign the trend is still working.
Write the shift down as a strategy
Go deeper
Most traders who read structure this way count the close. A wick shows where price went during the candle; the body shows where it was accepted when the candle finished. A wick that closes back is a rejection of those prices.
An MSS tells you the old trend is broken. The new trend is only confirmed when price makes its first lower high and lower low (or higher low and higher high). An MSS on M5 can be a normal pullback on H4.
Strategies is in the Trading Lab. Name the key level as the last higher low or lower high, and link the trades you take on it to that strategy, so you can see how the setup performs on its own.
A wick that looked like a shift
Three cases with illustrative prices, not a record of a real day. First, a shift that was not one.
Worked example
Example 01: A failed MSS: the wick goes through, the close comes back
The worked example, with every number walked through, is in the app.
One candle, two timeframes
Second, a shift that depends on the chart you are looking at.
Worked example
Example 02: An MSS on M5 that is only a pullback on H4
The worked example, with every number walked through, is in the app.
What happened next
On H4 the last higher low is 1.33800 and the last higher high 1.34900. Price kept falling to 1.34150, a 75 pip pullback that held 35 pips above the H4 higher low, then rallied to 1.35240, a break of structure 34 pips above the old H4 high.
A clean shift, swing by swing
Third, a clean shift from start to finish.
Worked example
Example 03: A clean bearish MSS on XAUUSD
The worked example, with every number walked through, is in the app.
Practise it in the backtester
XAUUSD on H1 and mark every HH, HL, LH and LL.Practise where a mistake costs nothing
Reading structure is a skill you build by repetition. Keep marking swings until you can name the last higher low before the shift prints. In the backtester the playhead hides what comes next, and the horizontal line tool marks the last higher low before the shift prints. Then compare the trades you took right after a shift with the rest.
When you log a trade, give it the same setup tag every time, such as MSS or Pullback: the Trade Log filters by tag, so you can pull up every shift trade you have taken and see how they went.
Check yourself
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Quiz
Check yourself: 1 question
Answer each question and see why it is right, in the app.