Market structure shift

Market structure is the sequence of swing highs and swing lows. An uptrend holds while each pullback stops above the previous higher low. A market structure shift is the break of that low – or, in a downtrend, the break of the last lower high.

What separates an MSS from an ordinary dip is how the level breaks. The move is fast, its candles are large and close near their extremes, and it usually leaves a fair value gap. A slow drift through the level is not treated as a shift.

The full sequence has three parts. A sweep is not required by every definition, but a shift that starts from one is given more weight: the stops beyond the level have been used, and price turned at once.

• Liquidity sweep – price first trades beyond an obvious high or low and fails to hold there. In the diagram a wick takes the previous high and the candle closes back below it. See liquidity sweep.
• Displacement – one or several large candles in the opposite direction with small wicks against the move.
• Break – a candle of that move closes beyond the swing that held the trend: the last higher low in an uptrend, the last lower high in a downtrend.

A change of character (CHoCH) is the first close beyond a swing against the trend. An MSS is the same break seen through ICT terms, and many traders use the two names for one event.

Where a line is drawn, it is drawn by quality. CHoCH is any first break against the trend, including a weak one. MSS is a break made with displacement, usually after a sweep. Some traders also use the terms in sequence: CHoCH for the first warning, MSS for the break that confirms the turn. Pick one definition and keep it.

A break of structure (BOS) is a close beyond a swing in the direction of the trend. It says the trend continues. A market structure shift is a break against the trend. After a bearish MSS the next bearish breaks are again called BOS – the shift happens once, at the turn.

On Charts the Market Structure (BOS and CHoCH) indicator in the Smart Money group labels the breaks, and Fair Value Gaps marks the gaps left by displacement. Smart Money indicators are included in Plus and Premium.

• Context – start from a higher-timeframe level: a previous day's high or low, equal highs or lows, an order block. A shift in the middle of nowhere means less.
• Trigger – a sweep of that level, then displacement that closes beyond the last swing on the trading timeframe.
• Entry – on the return to the fair value gap or the order block left by the displacement, not on the breaking candle.
• Stop – beyond the extreme of the sweep, or beyond the start of the displacement for a tighter version.
• Target – the nearest opposite liquidity: the last swing low below price after a bearish shift, the last swing high after a bullish one.

• Calling every break a shift – without displacement a break of a swing is often a deeper pullback.
• Trading against the higher timeframe – a bearish shift on the 5-minute chart inside a daily uptrend often leads to one small leg down and nothing more.
• Counting a wick – most traders require a candle close beyond the swing.
• Chasing the displacement – the entry is far from the stop. Price often returns to the gap first, and when it does not, the trade is skipped.