Market structure is a technical analysis framework for identifying the trend and phase of a market by analysing the sequence of highs and lows on a price chart. Rather than reacting to individual candles or indicators, market structure focuses on the big picture: is the market making higher highs and higher lows (uptrend), lower highs and lower lows (downtrend), or oscillating between defined levels (ranging/consolidation)? Understanding market structure allows traders to trade in alignment with the dominant trend rather than against it.
Core market structure concepts: HH/HL (Higher Highs / Higher Lows) — the hallmark of an uptrend; each swing high and low is higher than the last; LH/LL (Lower Highs / Lower Lows) — the hallmark of a downtrend; Break of Structure (BOS) — when price breaks above a previous swing high in an uptrend (bullish continuation) or below a previous swing low in a downtrend (bearish continuation); Change of Character (CHoCH) — the first sign of a potential trend reversal; price breaks against the prevailing trend’s structure for the first time; and Key Levels — swing highs and lows that act as significant support and resistance. Market structure analysis is the foundation of Smart Money Concepts (SMC), an institutional-focused trading framework that has become extremely popular in crypto trading communities.
Example: BTC makes HH/HL structure for 8 weeks. It then forms a lower low below the most recent swing low — a Change of Character (CHoCH). A structure-focused trader closes their long and prepares for a potential downtrend confirmation.
Learn more: Investopedia — Market Structure
