How to read market structure — higher highs and higher lows

A reader once sent me a EUR/USD chart with twenty lines, three indicators and one question: "why do I keep losing?". I told him to delete everything and mark only the peaks and troughs. Ten minutes later he saw what half a year of indicators had hidden: the market had been climbing in steps for weeks, and he had stubbornly been selling. That is market structure — the arrangement of successive peaks and troughs that tells you which way price is really going. Below I show how to read it and anchor a stop loss to it.

What is a swing high and a swing low?

Before we can describe a trend, we need two building blocks. A swing high, a local peak, is a candle whose high sits above the highs of several candles around it — price pushed up, turned, and left a peak behind. A swing low, a local trough, is the opposite: a low that sits below its neighbours, the point where the market turned back up. These are the only two kinds of points you need.

In practice I use a simple rule: a peak or a trough must have two or three lower (or higher) candles on each side. That filters out small noise. Do not chase single-pip precision — look for obvious points, the ones that jump out at a glance. If you have to think hard about whether something is a swing, it probably is not one.

What do an uptrend, a downtrend and a range look like?

Now we link the blocks into a sequence. An uptrend is a series of higher highs (HH) and higher lows (HL) — each new peak sits above the previous one, and each pullback also ends higher than the last. The market literally climbs in steps. As long as that sequence holds, the direction is up and there is nothing to argue about.

A downtrend is the exact mirror: a series of lower highs (LH) and lower lows (LL), each bounce ending lower and each trough deeper. A range, or sideways move, shows no clean sequence — peaks and troughs line up at roughly the same height. This is not "a trend you fail to understand", just a market where neither side holds the edge. Defining a trend through successive rising peaks and troughs goes back more than a century to Dow Theory — it is not an invention of modern trading.

What is a break of structure and why track it?

The most important point on an uptrend chart is the last higher low — I call it the protected low. As long as price defends it, the sequence of higher highs and higher lows stays alive. The moment a candle closes clearly below that low, the sequence breaks. That is a break of structure — the first hard signal that the prevailing direction may be ending.

Let me say this plainly, because many beginners trip over it here: a break of structure is a warning, not a guarantee of a reversal. Sometimes price punches through the protected low, rolls into a range, then pushes higher a few days later. So I treat the break as a reason to stop hunting for entries aligned with the old trend — not as a signal to open a position the other way. Observe first, decide second.

Why track it? To trade with the direction of the market, to place a stop loss behind a real level rather than a guess, and to notice early that the trend is breaking down. A protected low and a protected high are, after all, nothing but support and resistance levels — and how to draw them cleanly is something I laid out in the article on how to draw support and resistance.

How do you mark structure on a chart, step by step?

The whole procedure is four steps. First, pick one timeframe — to start I recommend the daily (D1) or the four-hour (H4), because they give clean swings. Second, find the obvious peaks and troughs, ignoring the small ripples. Third, label them: HH and HL in a rising trend, LH and LL in a falling one. Fourth, read the sequence left to right and ask: are the successive points rising, falling, or standing still?

A short pause: before you read on, open any daily chart and name the last three peaks and three troughs yourself. Two minutes, and it sticks far better than all of this reading.

"An uptrend would be defined as a series of successively higher peaks and higher troughs; a downtrend as a series of successively lower peaks and troughs." — John J. Murphy, Technical Analysis of the Financial Markets, New York Institute of Finance, 1999.

Why is structure a trap across timeframes?

And here is the catch. Structure is fractal — the same price move is made of smaller moves, and those of smaller ones still. A higher low on the daily chart, seen through the lens of the hourly, can look like a full downtrend with its own lower highs and lower lows. This is not a contradiction or an error, just two zoom levels of the same thing.

The consequence is practical: there is no point asking "what is the trend on EUR/USD". The sensible question is "what is the trend on this timeframe". That is why I always read structure together with multi-timeframe analysis — I set the direction on a higher timeframe and look for entries aligned with it on a lower one. The peaks-and-troughs mechanic is a foundation worth tying into the rest of the toolkit from the basics of technical analysis. Without that hierarchy, two timeframes contradict each other and the trader is tossed between them — exactly like the reader from the start.

Structure also reads more cleanly on liquid pairs. EUR/USD is the most liquid pair in the world — according to BIS data from April 2022, turnover on the foreign exchange market reached 7.5 trillion dollars a day. On thinly traded exotics, swings tend to be jagged and less reliable.

What to do tomorrow

Theory without a chart does not stick. Here is a plan for the next few days — each step takes from a few to a few dozen minutes and needs no paid tool.

1. Strip one chart down to bare price. Open EUR/USD on the four-hour timeframe, remove every indicator, and mark only the last three peaks and three troughs. You will see the market's direction more clearly than with ten lines on screen, and your eye will learn to catch the sequence on its own.
2. Label every swing and read the sequence out loud. Tag each peak HH or LH, each trough HL or LL, and say aloud whether it is an uptrend, a downtrend or a range. Saying it out loud forces a decision and exposes the spots where you are not sure of your reading.
3. Mark the protected swing and plan your stop on it. In an uptrend that is the last higher low, in a downtrend the last lower high. Decide where you would put a stop a few pips beyond it, and only then size the position to that distance — never the other way round.
4. Check the same moment on two timeframes. Look at the structure first on the daily, then on the hourly, and note whether they agree or contradict each other. This shows you on your own chart why direction must be set on the higher timeframe before you drop down for an entry.
5. Repeat the whole process on three pairs for a week. Take EUR/USD, GBP/USD and USD/JPY and read their structure afresh every evening for five days. After a week, spotting higher highs and higher lows becomes a reflex rather than a ruler exercise.

This is not investment advice — it is chart-reading practice. Treat market structure as the skeleton on which you only then hang a strategy, risk management and your own discipline. If you want to go deeper on the foundations of trend, I have them laid out in the technical analysis section on ForexMechanics.