What is a break of structure?

Beginner Questions
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How to identify a break of structure?

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Higher highs and higher lows in a bullish trend and lower highs and lower lows in a bearish trend.

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Break of structure is exactly that…

First find a structure in the chart… Price is always forming structures… When it’s going sideways, you can draw a box (horizontal Channel) … when it’s trending you can draw a diagonal Channel or a Trendlines above or below price … when it’s stalling, you can draw a triangle… etc etc … when price is having a hard time breaking a level, you can draw a horizontal line, which is a structure called support or resistance.

All these are structures… So when price violates the structure, it’s a break of structure.

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In trading, a “break of structure” refers to a point where the price action on a chart breaks a significant support or resistance level, often indicating a potential change in market direction.

To understand this, let’s define a couple of key terms:

  1. Price Action: This refers to the movement of a security’s price and is often represented on a chart in the form of candles, bars, or lines.

  2. Support Level: This is a price level where, historically, a security has had difficulty falling below. It is essentially the level at which demand (buyers) is strong enough to prevent the security from falling further.

  3. Resistance Level: Conversely, this is a price level where a security has had difficulty going above. It’s the level where supply (sellers) is strong enough to prevent the security from rising further.

In a bullish (upward) trend, the price makes higher highs and higher lows. The structure of this trend is broken when the price makes a lower low, indicating a potential trend reversal or a period of consolidation. Similarly, in a bearish (downward) trend, the price makes lower lows and lower highs. The break of this structure happens when the price makes a higher high, indicating a possible trend reversal or consolidation period.

A break of structure doesn’t always lead to a trend reversal. Traders use additional indicators and tools to confirm the change in trend before making trading decisions.