Market Structure
The pattern of successive highs and lows on a chart used to classify the current trend, with higher highs and higher lows defining an uptrend and the reverse defining a downtrend.
Market structure refers to the observable pattern of successive price highs and lows on a chart, used to classify what kind of trend is currently in effect. An uptrend is defined by a sequence of higher highs and higher lows, where each successive peak and trough sits above the last. A downtrend is the mirror case, defined by a sequence of lower highs and lower lows. A range, or sideways market, occurs when highs and lows stay roughly within the same band without establishing a clear directional sequence of either kind.
A shift in market structure — for example, an uptrend's sequence of higher highs and higher lows suddenly producing a lower low instead — is widely treated as one of the earliest, most direct signals that a trend may be changing, often preceding confirmation from other signals like a trend line (see Kaavon's "Trend Line" glossary definition) break or a chart pattern completing. Reading market structure correctly, including distinguishing a genuine structural shift from a normal, temporary pullback within a continuing trend, is considered a foundational skill underlying most other forms of technical analysis.
Examples
- An uptrend's market structure of higher highs and higher lows producing a lower low instead is widely treated as one of the earliest signals that the trend may be shifting.
- Distinguishing a genuine market structure shift from a normal, temporary pullback within a continuing trend is a foundational skill underlying most other technical analysis.