Strategies · beginner · 6 min

Market Structure Basics

Before any strategy, there is a shared vocabulary for describing what price is doing. That vocabulary is market structure: the sequence of highs and lows a market prints as it moves. Almost every strategy in this track is written in this language, so it's worth getting straight first.

Swings: highs and lows

A swing high is a peak with lower bars on either side — a local top. A swing low is a trough — a local bottom. Reading a chart as a chain of swing highs and swing lows, rather than a wiggly line, is the first step to describing structure.

The three states

Strung together, those swings describe one of three states:

• Uptrend — a sequence of higher highs and higher lows. Each peak tops the last; each dip bottoms higher than the last.
• Downtrend — lower highs and lower lows. The mirror image.
• Range — highs and lows on roughly the same levels, going sideways. No clear sequence.

This is descriptive, not predictive. Saying "this chart is in an uptrend" is a statement about the highs and lows so far, the same way "it has been sunny this week" describes the past week. It carries no promise about tomorrow.

Break of structure

The interesting moments are when the sequence breaks. In an uptrend of higher highs and higher lows, the first time price makes a lower low — undercutting the previous swing low — the up-sequence is broken. Traders call this a break of structure (BOS). It doesn't mean the trend has reversed; it means the specific pattern that defined it has ended, and the market is, for now, doing something else.

Why it matters for what follows

Market structure is the frame every other lesson hangs on:

• Support and Resistance are the levels those swing highs and lows tend to form at.
• Trend-following strategies are, at heart, attempts to mechanise "trade with the sequence of higher highs and higher lows" — and the Trend-Following Basics lesson tests one honestly.
• The famous Golden Cross is one particular, lagging way of detecting that a trend is in force.

Learning to read structure is free and always useful. Turning it into a rule you trade is where the robustness gates come in — because a pattern that is obvious in hindsight is a very different thing from a rule that makes money out-of-sample. Everything in this track keeps that distinction front and centre.

What to read next

• Support and Resistance — where the swings tend to form.
• Trend-Following Basics — a structure-following rule, tested.