Each high is above the previous one (HH), each low above the previous one (HL).
Downtrend
Lower highs (LH) and lower lows (LL).
Break of structure
Price closes beyond the last important low in a rally or high in a decline.
Range
Highs and lows aren't being broken; price moves inside a range.
What structure is
The market moves in waves: impulse, pullback, impulse again. Connect the peaks and troughs of those waves and you get the structure. It shows who controls the market right now.
HH (Higher High) — a higher high.
HL (Higher Low) — a higher low.
LH (Lower High) — a lower high.
LL (Lower Low) — a lower low.
An uptrend is a sequence of HH and HL: every pullback ends higher than the last, every rally makes a new high. A downtrend is a sequence of LH and LL.
Break of structure
As long as the last HL holds in an uptrend, the trend is alive. When price closes below the last higher low, the structure is broken: buyers failed to defend the level where they used to step in.
A series of HH and HL, then a close below the last HL — the first signal of a trend change. Illustrative data.
A break of structure doesn't guarantee a reversal, but it's an early and honest signal: the scenario you were holding longs for no longer works.
How to use it
01
Read structure on the higher timeframe
Daily or 4-hour: who controls the market.
02
Trade with the structure
In an uptrend, buy pullbacks to the HL; in a downtrend, sell pullbacks to the LH.
03
Watch the last important low
It's where the scenario breaks and the logical place for a stop.
04
Wait for reversal confirmation
After a break of structure, wait for a new LH in the decline before shorting.
Not every small wave is part of the structure. Watch the important highs and lows of your working timeframe: on the five-minute chart a "break" happens every hour.
Common mistakes
Trading against the structure
Shorting a series of HH and HL means arguing with a market that is clearly rising.
Mistaking a pullback for a break
A deep pullback that didn't close below the last HL isn't a break yet.
Watching only the lower timeframe
A break on the 15-minute chart may be an ordinary pullback inside the daily trend.
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