A Simple Way to Identify Market StructureGoldOANDA:XAUUSDLonesomeTheBlue Market structure is the sequence of price movements expressed through highs and lows, which allows you to determine the current direction of the market and its underlying logic. Simply put: Market structure is the “skeleton” of the chart that shows where the market is moving and who is in control — buyers or sellers. How Market Structure Is Formed A downtrend structure is a sequence of lower highs and lower lows. An uptrend structure is a sequence of higher highs and higher lows. However, in reality, charts rarely look this clean. Trying to map structure on a live market often results in something like this: Internal and External Structure To make the chart clear and analyzable, it is important to distinguish between external and internal structure. External structure forms the sequence of higher highs and higher lows, or lower highs and lower lows, that we use to analyze the trend. Internal structure refers to the movements within the external structure — essentially, corrections within the trend. To mark the external structure on the chart, identify a clearly defined swing. In our example, this is the move highlighted by the blue rectangle: The upper and lower boundaries of the rectangle define the range of the external structure: Everything inside the boundaries is internal structure (a correction). Everything that breaks beyond the boundaries is external structure (a new impulse wave). Where I drew the red line, price updated the external structure: If we wanted to map the external structure, it would look like this: Next, we shift our rectangle to the move that updated the external structure. We then extend it and observe where price breaks the boundary of this rectangle. Since price is in a downtrend and the break occurs in the direction of continuation (price breaks the lower boundary), this is a BOS. In other words, BOS is a move that confirms trend continuation. For a downtrend, it is the break of a key low; for an uptrend, it is the break of a key high. At this stage, we can already draw the external structure like this: Next, we repeat the same technique by shifting the rectangle (from the correction high to the break of the previous structure’s low): At this point, our structure looks like this. Agree, it now closely resembles the clean example we saw at the beginning: From here, we continue applying the same logic until the structure is fully mapped: An Important Detail One aspect that may cause confusion is identifying a confirmed external swing. If the chart looks like this: We would define the external structure like this: We would not mark it like this: Because we do not yet know whether the break will occur to the upside or downside. As long as price remains within the rectangle, it is in a local range relative to the overall trend. We determine trend continuation or reversal based on the external structure. BOS and MSS In market structure analysis, two key concepts are Break of Structure (BOS) and Market Structure Shift (MSS). BOS is a break of structure in the direction of the trend, confirming its continuation. What it looks like: In an uptrend, price breaks the previous high (Higher High), which for us is a break of the upper boundary of the rectangle. In a downtrend, price breaks the previous low (Lower Low), which for us is a break of the lower boundary of the rectangle. In other words, the market does exactly what it is supposed to do — it continues moving in the current direction. MSS is a structural break that signals a potential trend reversal. What it looks like: In an uptrend, price breaks the last Higher Low to the downside, meaning it breaks the lower boundary of the rectangle. In a downtrend, price breaks the last Lower High to the upside. Try applying this on your charts — after a few attempts, you will realize how logical and simple it really is. If this post gets 150 🚀, in the next one we will break down how to filter false signals and identify a confirmed trend reversal.