Market structure: swings, highs and lows

Why we start with structure

Every ICT/SMC concept (order blocks, fair value gaps, liquidity) only makes sense inside a correct reading of structure. If you can't say what phase price is in, no setup will save you: it will just be a drawing on a chart.

Structure is the sequence of price turning points. It is an objective method: you look at what price has done, not at what it 'should' do.

Swing highs and swing lows

A swing high is a high with lower highs on both its left and right. A swing low is a low with higher lows on both sides. In practice: the middle candle of a group (often 3 or 5 candles) has the highest high, or the lowest low, of its neighbours.

How many candles you consider changes the sensitivity: with 2 candles per side you get many swings (noise), with 5-10 you get few but significant ones. There is no right value: choose it per timeframe and use it consistently.

Uptrend, downtrend and range

• Uptrend: a sequence of higher highs (HH) and higher lows (HL)
• Downtrend: a sequence of lower highs (LH) and lower lows (LL)
• Range: price oscillates between a high and a low without making lasting new extremes

Internal and external structure

In SMC practice we distinguish the major structure (the important swings of the higher timeframe) from the internal one (the smaller moves inside the leg). A pullback in the major uptrend can be, on a lower timeframe, a small downtrend. Knowing which level you are looking at avoids a lot of confusion.

Exercise

• Open an H4 chart of a major pair and mark the swings by hand, using 5 candles per side
• Write next to each one: HH, HL, LH or LL
• State the current structure (bullish, bearish or range) and the level that, if broken, would invalidate it
• Repeat on 10 other historical points and check whether your reading 'in hindsight' was consistent