Market Structure (Part 1)
The three types of market and how to read swing highs and lows: the basis for everything in SMC.
Market structure is the most important foundation in SMC. It is the basis we use to identify how the market is moving, so we always read it first before anything else.
The three types of market
- Bullish: price is rising. Our entries here are long (buy) entries.
- Bearish: price is falling. Our entries here are short (sell) entries.
- Ranging / consolidation: no clear higher highs or lower lows; price just swings sideways.
Naming the swing points
We label the peaks and troughs of price as swing highs and swing lows. A low that sits above the previous low is a Higher Low (HL). A high above the previous high is a Higher High (HH). A high below the previous high is a Lower High (LH), and a low below the previous low is a Lower Low (LL).
Price pushes up strongly and makes a peak. A peak higher than the one before it is a Higher High (HH).
Spot it: A new peak ABOVE the last peak = a Higher High.
Now flip it. Price falls and makes a trough BELOW the previous low. A low under the last low is a Lower Low (LL).
Spot it: A new low BELOW the last low = a Lower Low.
The rule to remember
In a bullish market expect the market to keep making new higher highs. In a bearish market expect new lower lows. That expectation is what keeps you on the right side.
Why we avoid ranging markets
In a range there are only swing highs and lows, with no clean HH/HL or LL/LH to lean on. These are low-probability conditions, so we focus on trending markets where the chance of profit is higher. Remember: less is more. You don't need to catch every move to be profitable.
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