Market structure is the foundation of price action trading and plays a crucial role in Smart Money Concepts (SMC). It helps traders understand the current trend, spot potential trend reversals, and make high-probability trading decisions.
Now, let’s break it down in detail.
📈 Bullish Market Structure (Uptrend)
A bullish trend happens when price consistently moves higher over time. This means that buyers (bulls) are in control and pushing the market upward.
Key Characteristics of an Uptrend:
1️⃣ Higher Highs (HH):
- The price breaks above the previous high, showing strong buying pressure.
2️⃣ Higher Lows (HL): - After a pullback (retracement), price doesn’t drop below the last low but forms a new higher low.
Example of a Bullish Trend:
Imagine stock XYZ is moving up:
🔹 Price moves from $100 to $120 → This is a Higher High (HH).
🔹 Then it retraces (pulls back) to $110, but it stays above the previous low ($100) → This is a Higher Low (HL).
🔹 Next, it rallies up to $130 (HH) and retraces to $115 (HL).
➡️ As long as price keeps making HH and HL, the uptrend continues!
👉 What it means for traders?
- Look for buying opportunities when price forms a Higher Low (HL) in a strong trend.
- Smart Money often enters on a retracement to an order block (OB) or a fair value gap (FVG) before the next move up.
📉 Bearish Market Structure (Downtrend)
A bearish trend happens when price consistently moves lower over time. This means sellers (bears) are in control, pushing the market downward.
Key Characteristics of a Downtrend:
1️⃣ Lower Lows (LL):
- Price breaks below the previous low, confirming strong selling pressure.
2️⃣ Lower Highs (LH): - After a pullback (retracement), price doesn’t go above the last high but forms a lower high.
Example of a Bearish Trend:
Imagine stock XYZ is moving down:
🔹 Price drops from $200 to $180 → This is a Lower Low (LL).
🔹 Then it retraces (pulls back) to $190, but it stays below the previous high ($200) → This is a Lower High (LH).
🔹 Next, it falls to $170 (LL) and retraces to $185 (LH).
➡️ As long as price keeps making LL and LH, the downtrend continues!
👉 What it means for traders?
- Look for selling opportunities when price forms a Lower High (LH) in a strong downtrend.
- Smart Money often enters short positions at mitigation blocks or supply zones before the next move down.
🔄 Trend Reversal: Change of Character (CHoCH)
A trend doesn’t continue forever—eventually, it reverses. The moment when the market shifts from bullish to bearish or vice versa is called a Change of Character (CHoCH).
How CHoCH Works?
1️⃣ Bullish to Bearish Reversal:
- If a bullish market (HH, HL) suddenly starts making LL, LH, it signals a bearish reversal.
- Smart Money often induces liquidity before reversing.
2️⃣ Bearish to Bullish Reversal:
- If a bearish market (LL, LH) suddenly starts making HH, HL, it signals a bullish reversal.
- This often happens after a liquidity sweep at a major support zone.
Example of a Bullish Reversal (CHoCH Up):
🔹 Market is making LL and LH → Downtrend.
🔹 Suddenly, price fails to make a new LL and instead breaks a previous LH → This is a Change of Character (CHoCH).
🔹 Now, price starts forming HH and HL → New uptrend begins!
Example of a Bearish Reversal (CHoCH Down):
🔹 Market is making HH and HL → Uptrend.
🔹 Suddenly, price fails to make a new HH and instead breaks a previous HL → This is a Change of Character (CHoCH).
🔹 Now, price starts forming LL and LH → New downtrend begins!
📌 Final Thoughts
Market Structure is the backbone of Smart Money trading. If you understand how to read trends, you can:
✅ Identify trend direction (bullish or bearish).
✅ Spot trend reversals (CHoCH) before they happen.
✅ Enter at high-probability levels (order blocks, fair value gaps).
📢 Pro Tip: Always combine Market Structure with liquidity zones, smart money footprints, and session timings for best results! 🚀