Market structure: highs and lows, break of structure and change of character

Before any tool or indicator, one question matters more: is the market trending up, down or ranging? Market structure answers it without any indicator at all.

The ABCs of structure

• HH (higher high)
• HL (higher low)
• LH (lower high)
• LL (lower low)

Higher highs and higher lows mean an uptrend; lower highs and lower lows mean a downtrend. When neither is clear, the market is ranging.

Break of structure (BOS)

In an uptrend, when price closes above the previous high, a bullish BOS prints and the trend continues. In a downtrend, breaking the previous low is a bearish BOS.

Change of character (CHoCH)

The first break against the prior trend. In a downtrend, if price breaks the last lower high, that is a bullish CHoCH, the first warning that the trend may be turning. A CHoCH is not full confirmation; that comes when a higher low and a bullish BOS follow.

Structure across timeframes

The daily structure can be bullish while the 4-hour chart is in a bearish correction. The right approach:

1. Take the main direction from the higher timeframe (daily).
2. Wait for a CHoCH on the lower timeframe in the direction of the main trend.
3. Enter in a good area such as demand or a Fibonacci level.

A common mistake

Do not count every small wiggle as a break of structure. Use meaningful swing highs and lows, and confirm breaks with a candle close, not a wick.

Our Smart Money Concepts (SMC) analyses in the forecasts section are built on exactly this. See more terms in the glossary.

📘 This article summarises ideas from our book "Fibonacci Chart Strategy", with 22 chapters and 137 real before-and-after examples. To get the book, message us on Telegram @fibonacci_chart.

---

Got a question? Ask us on Telegram support @fibonacci_chart, and follow our daily analysis on the Telegram channel.

Trading financial markets involves risk. This article is educational and is not investment advice.