What is Market Structure?
💡 Definition
Market Structure is the framework that defines how price moves through swing highs and swing lows, creating patterns that reveal the current trend direction and strength. It's the foundation of all Smart Money analysis, showing whether institutions are accumulating (bullish), distributing (bearish), or ranging (consolidation).
In Smart Money Concepts (SMC), understanding market structure is the most fundamental skill. Before identifying Order Blocks, FVGs, or liquidity grabs, you must first know the trend direction and phase. Market structure provides this roadmap, telling you whether to look for long or short opportunities.
Visual Representation
Bullish Market Structure
Bullish structure: Each high is higher than the previous (HH) and each low is higher than the previous (HL)
Bearish Market Structure
Bearish structure: Each low is lower than the previous (LL) and each high is lower than the previous (LH)
The Three Market Structures
Bullish Structure
Pattern: Higher Highs (HH) and Higher Lows (HL)
Meaning: Smart Money is accumulating and pushing price higher. Buyers are in control.
Strategy: Look for long entries at Higher Lows, Order Blocks, or FVGs in discount zones. Avoid shorting against the trend.
Bearish Structure
Pattern: Lower Lows (LL) and Lower Highs (LH)
Meaning: Smart Money is distributing and pushing price lower. Sellers are in control.
Strategy: Look for short entries at Lower Highs, Order Blocks, or FVGs in premium zones. Avoid buying against the trend.
Ranging Structure
Pattern: Equal Highs (EH) and Equal Lows (EL)
Meaning: Market is in consolidation. No clear trend. Institutions accumulating/distributing before next move.
Strategy: Wait for breakout and BOS/CHoCH. Trade range boundaries with caution. Best to avoid or trade breakouts only.
Understanding Swing Points
Key Swing Point Concepts
Swing High (High Point)
A peak in price with at least one lower high on each side. In bullish structure, new swing highs should be higher than previous ones (HH). Breaking a swing high with a BOS confirms trend continuation.
Swing Low (Low Point)
A valley in price with at least one higher low on each side. In bullish structure, new swing lows should be higher than previous ones (HL). Breaking a swing low against the trend signals CHoCH.
Internal Structure vs External Structure
External: Major swing points on higher timeframes (4H, Daily) that define the overall trend.
Internal: Minor swing points on lower timeframes (5m, 15m) used for precise entries within the trend.
How to Identify Valid Swing Points
A swing point needs clear separation - at least 3-5 candles on each side showing the high/low is respected. Wicks touching don't invalidate; body closes matter more. Higher timeframes = more significant swings.
The Four Market Phases
Understanding Market Cycles
1 Accumulation Phase
Market ranges after a downtrend. Smart Money quietly builds long positions. Low volatility, equal highs and lows. Retail traders think it's boring. Ends with a bullish BOS.
2 Markup Phase (Uptrend)
Bullish structure with HH and HL. Smart Money pushes price higher while adding to positions on pullbacks. This is where retail FOMO buyers enter late. Best phase for long positions.
3 Distribution Phase
Market ranges after an uptrend. Smart Money sells to late buyers. Price makes equal highs, struggles to push higher. Retail traders buy "the dip." Ends with a bearish BOS or CHoCH.
4 Markdown Phase (Downtrend)
Bearish structure with LL and LH. Smart Money pushes price lower while building short positions on rallies. Retail panic sellers exit at bottoms. Best phase for short positions.
Market Structure Shift (MSS)
What is a Market Structure Shift?
A Market Structure Shift (MSS) is essentially another term for CHoCH - it occurs when market structure breaks in a way that signals a potential trend change. Some traders differentiate MSS from CHoCH, but they fundamentally describe the same concept: a break of structure against the current trend.
Bullish to Bearish MSS
- Breaks last Higher Low
- Creates Lower Low
- Signals potential downtrend
- Wait for bearish BOS to confirm
Bearish to Bullish MSS
- Breaks last Lower High
- Creates Higher High
- Signals potential uptrend
- Wait for bullish BOS to confirm
Key Point: MSS/CHoCH is just the first warning. You need a BOS in the new direction to confirm the reversal is real before taking trades.
How to Read Market Structure
- Start with Higher Timeframes: Identify the overall trend on Daily or 4H charts first
- Mark Swing Points: Clearly label all swing highs and lows on your charts
- Identify the Pattern: Are you seeing HH/HL (bullish), LL/LH (bearish), or EH/EL (ranging)?
- Wait for Confirmation: Don't assume trend change until you see CHoCH followed by BOS in new direction
- Use Multiple Timeframes: Daily for bias, 4H for structure, 15m for entries
- Draw Structure Lines: Connect swing highs and swing lows to visualize the trend clearly
- Respect the Trend: Trade WITH the structure, not against it - the trend is your friend
- Update Regularly: As new swing points form, update your structure analysis
Why Market Structure is Everything
Market structure is the foundation upon which all SMC trading is built. Without understanding structure, you cannot:
✦ Determine whether to look for long or short opportunities
✦ Identify when trends are continuing versus reversing
✦ Know which Order Blocks to trade and which to ignore
✦ Understand whether you're in premium or discount zones
✦ Recognize when Smart Money is accumulating vs distributing
✦ Avoid counter-trend trades that have low probability of success
Every successful trade starts with correctly reading market structure. It tells you the story of what institutions are doing and where they're likely to push price next.
Common Structure Patterns
- Clean Trending Structure: Perfect HH/HL or LL/LH with no violations — strongest trends, easiest to trade.
- Choppy Structure: Multiple small swings with unclear pattern — avoid trading or wait for clarity.
- Structural Break & Retest: BOS/CHoCH followed by pullback to test the broken level — high probability setup.
- Failed Break (Reclaim): Price briefly closes beyond a swing but quickly reclaims the level — signals possible liquidity grab and continuation in original direction.
- Equal Highs/Lows Liquidity: Repeated tests form fuel for sweeps; wait for sweep + BOS for entries.
- Internal vs External Conflict: LTF flips against HTF trend often fail; trade with the higher‑timeframe unless strong displacement appears.
Putting It All Together (Workflow)
- 1) Define HTF bias (Weekly/Daily) → bullish, bearish, or range.
- 2) Map HTF swing points and current phase (accumulation/markup/distribution/markdown).
- 3) Drop to 4H/1H to refine external structure and key levels (BOS/CHoCH).
- 4) Use 15m–1m to execute with internal structure (sweeps, OBs, FVGs) in line with HTF bias.
- 5) Manage risk at structure: invalidation = close beyond your defining swing.
- 6) Journal each trade with screenshots of MSS→BOS and where you entered relative to structure.
Common Mistakes & Risk
Read the Story, Not Just the Candles
- Forcing a bias on LTF while HTF says the opposite.
- Calling CHoCH without a meaningful close (displacement matters).
- Buying premium / selling discount just because of one candle.
- Not updating structure as new information prints.
- Setting stops inside swing noise instead of beyond invalidation.
Risk a small, fixed % per idea (e.g., 0.25%–1%). Structure‑based invalidation keeps losses small when your read is wrong.