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Trading Foundations · Lesson 03 of 06

Identifying Market Structure

Market structure describes how price moves through highs and lows. It helps you describe a chart’s direction without assuming what will happen next.

In this lesson
Learning journal
Course outline · Lesson 03 of 06
  1. 01Understanding Trading and Risk
  2. 02Reading Charts and Timeframes
  3. 03Identifying Market Structure
  4. 04Building a Trading Plan
  5. 05Position Sizing and Managing Exposure
  6. 06Keeping a Trading Journal
Observe

An uptrend commonly forms higher swing highs and higher swing lows. A downtrend commonly forms lower swing highs and lower swing lows.

A range occurs when price moves repeatedly between areas without sustained directional progress. Some charts are unclear; you do not need to force a trend label.

For this exercise, identify a swing high when its high is above the highs of the two completed candles on each side. Identify a swing low when its low is below the lows of the two completed candles on each side.

This rule requires later candles for confirmation. You could not have confirmed the swing at the exact moment its highest or lowest price occurred.

Support and resistance are areas where price previously reacted. They are not guaranteed barriers. Price can move through them, and an apparent breakout can fail.

Uptrend: higher swing highs and higher swing lowsTap image to enlarge
Made-up uptrend with swing highs at candles 5, 13 and 21 rising, and swing lows at candles 9, 17 and 25 rising. The high at candle 5 is confirmed after candle 7 closes.
Illustration only. Successive swing highs and swing lows rise. The swing high at candle 5 is confirmed only after candle 7 closes under the lesson rule; it was not known at candle 5. Select the image to enlarge.
Downtrend: lower swing highs and lower swing lowsTap image to enlarge
Made-up downtrend with swing lows at candles 5, 13 and 21 falling and swing highs at candles 9, 17 and 25 falling. The low at candle 5 is confirmed after candle 7 closes.
Illustration only. Successive swing highs and swing lows fall. The swing low at candle 5 is confirmed only after candle 7 closes under the lesson rule. Select the image to enlarge.
Range: repeated reactions around upper and lower areasTap image to enlarge
Made-up range with price moving repeatedly between upper and lower shaded reaction areas, without sustained directional progress. Swing highs are marked H and swing lows L; neither area guarantees a reversal.
Illustration only. H marks a swing high; L marks a swing low. Price repeatedly revisits the shaded areas without sustained directional progress. These areas can fail. If a real chart is unclear, record that uncertainty instead of forcing a label. Select the image to enlarge.
Practise

Practical exercise

Using a demo chart:

  1. Find an example of an uptrend.
  2. Find an example of a downtrend.
  3. Find a range or an unclear section.
  4. Mark the swing points using the rule above.
  5. Record when each swing became confirmed.
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Review · 5 questions

Knowledge check

Write your answers in your learning journal before checking the answer key.

1. Which sequence commonly describes an uptrend?

  1. A. Higher highs and higher lows.
  2. B. Lower highs and lower lows.
  3. C. Identical prices throughout.

2. Does support guarantee that price will rise?

  1. A. Yes.
  2. B. No.
  3. C. Only on daily charts.

3. When should you define your swing-identification rule?

  1. A. After seeing the result.
  2. B. Only after a loss.
  3. C. Before analysing examples.

4. Does our practice swing rule require later candles?

  1. A. Yes.
  2. B. No.
  3. C. Only in downtrends.

5. What should you do when structure is unclear?

  1. A. Force a trading signal.
  2. B. Record the uncertainty.
  3. C. Pretend the chart is trending.
Reveal the answer key
  1. A — Both swing highs and lows progress upward.
  2. B — Support can fail.
  3. C — Consistent rules make comparisons more useful.
  4. A — Two completed candles on the right provide confirmation.
  5. B — Recognising uncertainty is part of analysis.