Technical analysis · Lesson 1 of 4
Trend structure
4 min read
Draft lesson — under editorial review
Before you reach for any indicator, it helps to answer a simpler question: which way is the market actually moving? Trend structure answers it using nothing but the highs and lows on your chart, and almost every other tool in technical analysis builds on it.
Swing highs and swing lows
Prices rarely move in straight lines. They advance, pull back, then advance again. The turning points are called swings:
- A swing high is a peak with lower highs on either side of it.
- A swing low is a trough with higher lows on either side of it.
A common working definition is a candle whose high (or low) is more extreme than the two candles on each side, but there is no single official rule. What matters is being consistent with your own definition.
The three market states
| State | Swing highs | Swing lows |
|---|---|---|
| Uptrend | Higher highs | Higher lows |
| Downtrend | Lower highs | Lower lows |
| Range (sideways) | Roughly equal highs | Roughly equal lows |
In an uptrend, each rally reaches beyond the last peak and each pullback holds above the last trough. In a downtrend, the reverse is true. In a range, price moves back and forth between a ceiling and a floor without making progress.
Markets spend a large share of their time in ranges or in messy, overlapping conditions that fit none of the categories neatly. Recognising "no clear trend" is a valid and useful conclusion.
Worked example: reading a sequence of swings
Here is a sequence of swing points on a EUR/USD four-hour chart (example prices):
| Swing | Price | Compared with previous swing of same type |
|---|---|---|
| Low A | 1.1000 | Starting point |
| High A | 1.1080 | Starting point |
| Low B | 1.1030 | Higher than 1.1000, a higher low |
| High B | 1.1120 | Higher than 1.1080, a higher high |
| Low C | 1.1060 | Higher than 1.1030, a higher low |
| High C | 1.1150 | Higher than 1.1120, a higher high |
Three higher lows and three higher highs: a textbook uptrend. Each pullback has been between 50 and 60 pips (1.1080 to 1.1030 is 50 pips, 1.1120 to 1.1060 is 60 pips).
Now suppose the price falls from 1.1150 to 1.1040. That is below the most recent higher low at 1.1060. The pattern of higher lows has been broken.
Breaks in structure
A break in structure happens when price violates the most recent swing that defined the trend:
- In an uptrend, a close below the last higher low.
- In a downtrend, a close above the last lower high.
A break does not prove a new trend has started. In the example, the market may form a lower high next and begin a downtrend, or it may recover and carry on upward, or it may settle into a range. What the break does tell you is that the uptrend can no longer be assumed, and that any trade relying on it needs rethinking.
Many traders wait for a close beyond the swing rather than a brief wick through it, because temporary spikes are common around news.
Timeframe alignment
The same pair can be in an uptrend on the daily chart, a downtrend on the hourly chart and a range on the 15-minute chart, all at once. Each timeframe answers a different question, so a common approach is to work top-down:
- Higher timeframe (for example daily): what is the main direction?
- Middle timeframe (for example four-hour): where is price within that move, and what is the current structure?
- Lower timeframe (for example hourly): where is a precise point to enter, with a sensible stop?
Many traders use timeframes roughly four to six times apart, such as daily, four-hour and hourly, so each step adds detail without becoming noise.
Why alignment helps
When the higher and middle timeframes agree, a lower-timeframe pullback is more likely to be a pause within the larger move than the start of a reversal. When they disagree, you are trading against a bigger force, and the odds are less clear. Disagreement is not a reason to trade the other way; it is often a reason to wait.
Trend lines, briefly
A trend line connects two or more swing lows in an uptrend, or swing highs in a downtrend. It gives a visual guide to the slope of the trend. Trend lines are subjective, because different traders pick different anchor points, so treat them as a rough guide rather than a precise level. The swing structure itself is usually a more objective reference.
Key takeaways
- Uptrends make higher highs and higher lows; downtrends make lower highs and lower lows; ranges make neither.
- A close beyond the most recent defining swing is a break in structure, not proof of a new trend.
- Work top-down: higher timeframe for direction, middle for structure, lower for timing.
- "No clear trend" is a legitimate reading, and often a reason to stand aside.
Educational content only — not financial advice. Trading leveraged products such as forex and CFDs carries a high risk of losing money.