Market structure describes trend with swing points: an uptrend makes higher highs (HH) and higher lows (HL); a downtrend makes lower highs (LH) and lower lows (LL). A break of structure (BOS) continues the trend; a change of character (CHoCH) is the first break against it.
Swing highs and swing lows
A swing high is a bar whose high is higher than the bars on either side of it; a swing low is the mirror. How many bars on each side you require (the pivot strength) decides how big a swing has to be to count.
Because the bars on the right side must close first, a swing is always confirmed a few bars after it happens. Tools that label swings instantly either guess or redraw later.
The four labels
- HH — a swing high above the previous swing high
- HL — a swing low above the previous swing low
- LH — a swing high below the previous swing high
- LL — a swing low below the previous swing low
BOS vs CHoCH
In an uptrend, closing above the last swing high is a break of structure: the trend continues. Closing below the last higher low is a change of character: the first sign the trend may be turning.
Using higher-timeframe structure
Swings on the 1-hour and 4-hour charts that price hasn't taken out yet are where many stops rest. Drawing them on a 1-minute or 5-minute chart shows the bigger picture while you execute on the smaller one.
What a mechanical test found
We tested trading the first change of character as a reversal signal, with and without a confluence score, on years of NQ data. It did not hold up out of sample. Structure is excellent for framing trades — which side to favour, where stops sit — but not as an automatic trigger.