Forget drawing simple lines for support and resistance. To trade alongside large institutions, you need to see the market's underlying framework. This framework is built by the flow of 'Smart Money'—the massive orders from banks and financial institutions that leave a clear trail on the price chart.

The building blocks of this structure are swing points. A swing high is a peak in price, with lower highs on either side of it. Conversely, a swing low is a valley, with higher lows on either side.

By connecting these swing points, we can map the market's direction and anticipate its next move. This isn't about predicting the future; it's about reading the present narrative of buying and selling pressure.

Once we've identified swing points, we can watch how price interacts with them. In an uptrend, we expect to see a series of higher highs and higher lows. When price breaks above a previous swing high, this is a Break of Structure (BOS).

A BOS confirms that the institutional buying pressure is still strong and the trend is likely to continue. In a downtrend, a BOS occurs when price breaks below a previous swing low, signalling continued selling pressure.

It's crucial to watch how the structure breaks. A valid BOS should be accompanied by Displacement. This is a strong, energetic move with large, full-bodied candles, indicating a clear commitment from institutional players. A weak, hesitant break might be a trap or a sign of a weakening trend.

While a BOS signals trend continuation, the first clue of a potential reversal is a Change of Character (CHoCH). This is also sometimes called a Market Structure Shift (MSS).

A CHoCH occurs when price breaks the most recent swing structure against the prevailing trend. For example, in a clear uptrend (making higher highs and higher lows), a CHoCH happens when price breaks below the last swing low. This doesn't guarantee a reversal, but it's a significant warning that the market dynamic is shifting. It tells us that the dominant players might be changing their tune.

Like a BOS, a CHoCH is most significant when it occurs with displacement. A powerful move breaking the last swing low is a much stronger signal than a slow grind downwards. By mapping these structural points—highs, lows, breaks, and shifts—you begin to build a clear directional bias based on institutional activity, not just simple patterns.

To refine our analysis, we distinguish between two types of market structure.

External Structure refers to the major swing highs and lows that define the overall trend. These are the large, obvious turning points on a chart. Breaking external structure (a BOS on the main trend) is a high-probability sign of trend continuation.

Internal Structure consists of the smaller swing points that form within a larger swing leg of the external structure. A Change of Character often starts as a break of internal structure. Watching how internal structure develops can give you early clues about whether the price will pull back or continue to break the next external point.

Think of it like a river. The external structure is the main direction the river is flowing. The internal structure is the small eddies and currents within that flow. A trader's job is to determine if a change in the internal currents is strong enough to change the direction of the entire river.

By understanding these core principles of market structure, you move from simply reacting to price to anticipating its logical progression based on institutional order flow.