Smart Money Concepts

Market structure: reading highs and lows

Market structure is the foundation of every other Smart Money concept. It is simply the order in which price makes swing highs and swing lows, and it tells you whether the chart is trending up, trending down or ranging.

What it is

A swing high is a peak with lower highs on both sides. A swing low is a trough with higher lows on both sides. Joining them in order gives the structure of the chart.

In an uptrend price keeps making higher highs (HH) and higher lows (HL). In a downtrend it makes lower highs (LH) and lower lows (LL). When neither pattern holds, the market is in a range.

How to spot it

1. Pick one timeframe (for example the daily chart) and stay on it while you mark swings.
2. Mark each swing high and swing low. A common rule is a candle whose high is above the highs of the candles on each side.
3. Compare each new swing with the previous one: higher high and higher low means up; lower high and lower low means down.
4. Write the current state next to the chart: 'up', 'down' or 'range'. Re-check it only when a swing is broken.

Worked example (illustrative)

Illustrative example: price makes a swing high at 110, pulls back to a swing low at 101, then rallies to 116 (higher high) and pulls back to 105 (higher low). Two highs and two lows are each higher than the ones before them, so the structure is an uptrend.

Common mistakes

• Marking every tiny wiggle as a swing. Use a consistent swing definition, or you will see structure everywhere.
• Mixing timeframes. A higher low on the 15-minute chart can sit inside a lower low on the daily chart.
• Treating structure as a prediction. It describes what has happened, not what must happen next.

Educational content only, using made-up prices. It is not investment advice and not a recommendation to buy, sell or hold anything. Trading carries risk of loss.

Frequently asked questions

Related concepts

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