Market Structure Shifts (MSS) & Change of Character (CHoCH) — The Blueprint for Reversals 🔄

What is Market Structure?

"Market Structure is the sequence of swing highs and swing lows that price creates as it moves. This sequence defines whether a trend is bullish, bearish, or ranging."

Bullish Market Structure (Uptrend):

Definition:

• Higher Highs (HH)
• Higher Lows (HL)
• Each high is HIGHER than the previous
• Each low is HIGHER than the previous

Visual:

Uptrend Structure:

        HH3
         /\
        /  \
  HH2  /    \
   /\ /      
  /  ╳  HL3
 / HL2 \    
╳      \  
HL1     \ 

Pattern: HL1 → HH1 → HL2 → HH2 → HL3 → HH3
Each low HIGHER than previous = bullish structure

The Rule:

• Uptrend remains valid AS LONG AS Higher Lows hold
• If price breaks below recent HL = trend in danger
• Trade WITH the trend until structure breaks

Bearish Market Structure (Downtrend):

Definition:

• Lower Lows (LL)
• Lower Highs (LH)
• Each low is LOWER than the previous
• Each high is LOWER than the previous

Visual:

Downtrend Structure:

╲     LH1
 \     /╲
  \   /  ╲  LH2
   \ /    ╲ /╲
   ╳ LL1   ╳  ╲  LH3
    \     LL2  ╲/
     \         ╳
      \       LL3

Pattern: LH1 → LL1 → LH2 → LL2 → LH3 → LL3
Each high LOWER than previous = bearish structure

The Rule:

• Downtrend remains valid AS LONG AS Lower Highs hold
• If price breaks above recent LH = trend in danger
• Trade WITH the trend until structure breaks

Ranging Market Structure:

Definition:

• No clear HH/HL or LL/LH pattern
• Price oscillates within boundaries
• No trend = no directional bias

Visual:

Range Structure:

Resistance: 1.1000 ════════════
                ╱╲      ╱╲
               ╱  ╲    ╱  ╲
              ╱    ╲  ╱    ╲
             ╱      ╲╱      ╲
Support:    1.0950 ════════════

No HH/HL or LL/LH = Range = No trade (or range-specific strategy)

The Rule:

• In range, price chops between support/resistance
• Wait for BOS (breakout) or MSS (fake breakout then reversal)
• Don't trend-trade a ranging market

The Process:

Step 1: Choose Your Timeframe

Primary structure: H4 or Daily
Execution: H1 or M15
**Start with HTF, refine with LTF**

Step 2: Identify Swing Highs and Lows

Swing High Definition:

A swing high has:
- At least 1 lower high on each side
- Clear rejection from the high
- Formed resistance

Example:
Candle A: High 1.0980
Candle B: High 1.1000 ← SWING HIGH
Candle C: High 1.0990

Candle B is higher than both neighbors = valid swing high

Swing Low Definition:

A swing low has:
- At least 1 higher low on each side
- Clear rejection from the low
- Formed support

Example:
Candle A: Low 1.0920
Candle B: Low 1.0900 ← SWING LOW
Candle C: Low 1.0910

Candle B is lower than both neighbors = valid swing low

Step 3: Label the Structure

Mark each swing:
- Swing highs: Label as HH, HH2, HH3 (if uptrend) or LH, LH2, LH3 (if downtrend)
- Swing lows: Label as HL, HL2, HL3 (if uptrend) or LL, LL2, LL3 (if downtrend)
**Visual clarity is key**

Step 4: Identify Current Trend

Look at sequence:
- HL → HH → HL2 → HH2 = Uptrend ✅
- LH → LL → LH2 → LL2 = Downtrend ✅
- Mixed/choppy = Range ⚠️

Complete Example:

EUR/USD H4 Chart:

1.1100 ─────────── HH2 (new high)
1.1050 ───────────
1.1000 ─────┬───── HH1 (previous high)
1.0950 ─────┼─────
1.0900 ─────┴───── HL1 (higher than starting point)
1.0850 ───────────
1.0800 ─────────── Starting Low

Structure reading:
- Low at 1.0800
- High at 1.1000 (HH1)
- Pullback to 1.0900 (HL1 - HIGHER than 1.0800) ✅
- Rally to 1.1100 (HH2 - HIGHER than 1.1000) ✅

Pattern: Higher Lows + Higher Highs = UPTREND
**Bias: Bullish until HL breaks**

Definition:

"In an uptrend, a BOS occurs when price breaks ABOVE the previous Higher High (HH) and closes decisively beyond it."

What It Means:

• Buyers remain in control
• Institutional buying continuing
• Trend is strong, continue trading long

Visual Pattern:

Bullish BOS Pattern:

1.1150 ───────────── HH2 (NEW high after BOS)
1.1100 ─────────────
1.1050 ─────┬─────── HH1 (previous high)
1.1000 ─────┼───────
1.0950 ─────┴─────── HL1 (higher low)
1.0900 ─────────────
1.0850 ───────────── Starting point

Sequence:
- HL1 at 1.0950 forms (pullback)
- Price rallies
- Breaks ABOVE HH1 at 1.1050
- Closes at 1.1080 (above HH1) ← BOS CONFIRMED
- Continues to HH2 at 1.1150

BOS at 1.1050 confirms: Uptrend continuing

The Trading Implication:

After BOS:

Price breaks to 1.1080 (BOS above 1.1050)
Continues to 1.1150
Then PULLS BACK

Where does it pull back to?
- New Higher Low (HL2) forms around 1.1060-1.1080
- **This zone contains Order Block + FVG**
- **This is your entry zone for continuation long**

Entry: 1.1070 (OB 50%)
SL: 1.1045 (below HL2 and OB)
Target: 1.1200+ (next BOS)
**Trading WITH the trend after BOS confirmation**

Complete BOS Trade Example:

Context:

• GBP/USD H4 uptrend
• Previous: HL1 at 1.2500, HH1 at 1.2600
• Current: Price at 1.2550 (pulled back from HH1)

The BOS:

Rally from HL1 (1.2500):
Breaks above HH1 (1.2600)
Closes at 1.2625 (25 pips above HH1)
= BOS CONFIRMED at 1.2600

Creates:
- New HH2 at 1.2650
- FVG from 1.2590 to 1.2615
- OB at 1.2585-1.2595

The Pullback:

After reaching 1.2650:
Price pulls back to 1.2600
Enters FVG zone
Hits OB at 1.2590
= ENTRY ZONE

The Trade:

Entry: 1.2590 (OB 50%)
SL: 1.2575 (below OB)
Risk: 15 pips

Target:
T1: 1.2650 (previous HH2)
Reward: 60 pips
R:R: 1:4

Result:
Price bounces from OB
Rallies to 1.2655
+60 pips ✅
**BOS trade successful**

Definition:

"In a downtrend, a BOS occurs when price breaks BELOW the previous Lower Low (LL) and closes decisively beyond it."

What It Means:

• Sellers remain in control
• Institutional selling continuing
• Trend is strong, continue trading short

Visual Pattern:

Bearish BOS Pattern:

1.0950 ───────────── Starting point
1.0900 ─────────────
1.0850 ─────┬─────── LH1 (lower high)
1.0800 ─────┼───────
1.0750 ─────┴─────── LL1 (lower low)
1.0700 ─────────────
1.0650 ───────────── LL2 (NEW low after BOS)

Sequence:
- LH1 at 1.0850 forms (bounce)
- Price drops
- Breaks BELOW LL1 at 1.0750
- Closes at 1.0725 (below LL1) ← BOS CONFIRMED
- Continues to LL2 at 1.0650

BOS at 1.0750 confirms: Downtrend continuing

The Trading Implication:

After BOS:

Price breaks to 1.0725 (BOS below 1.0750)
Continues to 1.0650
Then RALLIES BACK

Where does it rally to?
- New Lower High (LH2) forms around 1.0720-1.0740
- **This zone contains Bearish Order Block + FVG**
- **This is your entry zone for continuation short**

Entry: 1.0730 (Bearish OB 50%)
SL: 1.0755 (above LH2 and OB)
Target: 1.0600 (next major support)
**Trading WITH the downtrend after BOS**

Definition:

"In an established uptrend, an MSS occurs when price breaks BELOW the most recent Higher Low (HL) and closes decisively beyond it."

What It Signals:

• The HL that should have held as support has BROKEN
• Buyers FAILED to defend the structure
• Sellers have entered the market
• Potential trend reversal to bearish

Visual Pattern:

Bullish to Bearish MSS:

UPTREND (before MSS):

1.1100 ─────────── HH2
1.1050 ───────────
1.1000 ─────┬───── HH1
1.0950 ─────┼─────
1.0900 ─────┴───── HL1 (should hold as support)
1.0850 ───────────

MSS EVENT:

1.1100 ─────────── HH2 (last high)
1.1050 ───────────
1.1000 ───────────
1.0950 ───────────
1.0900 ═══════════ HL1 (the defending low)
         ↓ BREAK!
1.0850 ───╳─────── Price breaks BELOW HL1
1.0800 ─────────── Closes at 1.0820

Analysis:
✅ Broke below HL1 (1.0900)
✅ Closed at 1.0820 (80 pips below)
= MSS CONFIRMED
**Trend has failed, bearish bias now active**

Complete MSS Trade Example:

Context:

• EUR/USD H4
• Uptrend: HL1 at 1.0800, HH1 at 1.0950, HL2 at 1.0900, HH2 at 1.1050
• Current: Price at 1.1050

The MSS:

Price drops from 1.1050
Breaks below HL2 (1.0900)
Closes at 1.0875
= MSS CONFIRMED ✅

Identified:
- Defending HL: 1.0900 (broken)
- Bearish OB: 1.0890-1.0905 (final bullish candle)
- FVG: 1.0905-1.0875 (30-pip gap)

Waiting for Entry:

Price continues to 1.0820
Then rallies back (pullback)
Reaches 1.0890 (enters Bearish OB zone)
**ENTRY SIGNAL**

The Trade:

Entry: 1.0895 (Bearish OB 50%)
SL: 1.0910 (above OB high)
Risk: 15 pips

Targets:
T1: 1.0820 (recent low / LL)
Reward: 75 pips
R:R: 1:5.0

T2: 1.0750 (major support)
Reward: 145 pips
R:R: 1:9.67

Result:
Price rejects OB at 1.0895
Drops to 1.0825
T1 hit: +$375 (50% closed)
Continues to 1.0745
T2 hit: +$435 (40% closed)

Total: +$810 = 8.1% return on $10k account
**From one MSS reversal trade**

Definition:

"In an established downtrend, an MSS occurs when price breaks ABOVE the most recent Lower High (LH) and closes decisively beyond it."

What It Signals:

• The LH that should have held as resistance has BROKEN
• Sellers FAILED to defend the structure
• Buyers have entered the market
• Potential trend reversal to bullish

Visual Pattern:

Bearish to Bullish MSS:

DOWNTREND (before MSS):

1.0900 ───────────── Starting point
1.0850 ─────┬─────── LH1 (should hold as resistance)
1.0800 ─────┼───────
1.0750 ─────┴─────── LL1
1.0700 ─────┬─────── LH2
1.0650 ─────┴─────── LL2

MSS EVENT:

1.0900 ───╳─────── Price breaks ABOVE LH2
         ↑ BREAK!
1.0850 ═══════════ LH2 at 1.0850 (the defending high)
1.0800 ───────────
1.0750 ───────────
1.0700 ─────────── Closes at 1.0880

Analysis:
✅ Broke above LH2 (1.0850)
✅ Closed at 1.0880 (30 pips above)
= MSS CONFIRMED
**Downtrend has failed, bullish bias now**

Complete MSS Trade Example:

Context:

• USD/JPY H1
• Downtrend: LH1 at 145.50, LL1 at 144.00, LH2 at 145.00, LL2 at 143.50
• Current: Price at 143.80

The MSS:

Price rallies from 143.80
Breaks above LH2 (145.00)
Closes at 145.25
= MSS CONFIRMED ✅

Identified:
- Defending LH: 145.00 (broken)
- Bullish OB: 144.80-144.95 (final bearish candle)
- FVG: 144.95-145.20

Waiting for Entry:

Price continues to 145.80
Then pulls back
Reaches 144.90 (enters Bullish OB)
**ENTRY SIGNAL**

The Trade:

Entry: 144.90 (Bullish OB 50%)
SL: 144.75 (below OB)
Risk: 15 pips

Targets:
T1: 145.50 (LH1, first resistance)
Reward: 60 pips
R:R: 1:4.0

T2: 146.00 (major resistance)
Reward: 110 pips
R:R: 1:7.33

Result:
Bounces from OB perfectly
Rallies to 145.55
T1 hit: +$300
Continues to 146.10
T2 hit: +$330

Total: +$630 profit
**MSS reversal captured**

Criterion 1: Caused Displacement

Valid Swing:

Swing Low at 1.0900:
- Next move UP displaced 50+ pips to 1.0950
- Created FVG
- Left Order Block
= SIGNIFICANT swing (institution was here)
✅ Use this for BOS/MSS monitoring

Invalid Swing:

Minor low at 1.0920:
- Next move only to 1.0925 (5 pips, weak)
- No FVG
- No clear displacement
= Insignificant wiggle (just noise)
❌ Don't use for structure

Criterion 2: Broke Previous Structure

Valid Swing:

In uptrend:
Previous high: 1.0900
New swing high: 1.0950 (breaks 1.0900)
= Valid Higher High ✅
**Caused BOS, therefore significant**

Invalid Swing:

In uptrend:
Previous high: 1.0900
New swing: 1.0895 (DOESN'T break 1.0900)
= Not a higher high
❌ Invalid swing

Criterion 3: Timeframe Significance

Valid Swing (HTF):

Daily chart swing: 100+ pips of displacement
H4 swing: 50+ pips of displacement
= Major swings ✅
**Use these for primary MSS/BOS**

Invalid Swing (LTF):

M5 chart swing: 10-pip move
M1 swing: 3-pip move
= Minor noise ❌
**Don't use for primary structure**

Criterion 4: Left Institutional Footprint

Valid Swing:

Swing low at 1.0800:
- Swept SSL below 1.0800 (liquidity grab)
- Created Order Block at 1.0795-1.0805
- Displacement created FVG
= Institutional activity ✅
**High-quality swing point**

Invalid Swing:

Minor low at 1.0920:
- No sweep
- No OB
- No FVG
= Retail-driven move ❌
**Low-quality swing, skip**

Don't mark EVERY wiggle. Use hierarchy:

Primary Swings (ALWAYS mark):

HTF (Daily, H4):
- Last 3-5 major highs
- Last 3-5 major lows
- These define PRIMARY structure
**Most important for MSS/BOS**

Secondary Swings (Optional):

Mid TF (H1):
- Support HTF analysis
- Refine entries
**Use for LTF confirmation**

Ignore:

LTF (M15, M5, M1):
- Too much noise
- Creates false signals
**Don't use for primary structure**

Example:

Daily EUR/USD:

Mark these swings:
- Week 1 High: 1.1000 (HH)
- Week 2 Low: 1.0850 (HL)
- Week 3 High: 1.1050 (HH2)
- Week 4 Low: 1.0900 (HL2)
**These are your PRIMARY swings**

If HL2 (1.0900) breaks = MSS
If HH2 (1.1050) breaks up = BOS

M15 EUR/USD:

DON'T mark:
- Hundreds of tiny highs/lows
- Creates confusion
**Use M15 for ENTRY, not primary structure**

Step 1: Confirm the MSS

Checklist:

• ✅ Price broke the defending swing (HL in uptrend, LH in downtrend)
• ✅ Candle CLOSED beyond the swing (not just wick)
• ✅ On a significant HTF (H4, Daily)
• If all three = MSS confirmed

Example:

Uptrend, HL2 at 1.0900
Price drops to 1.0885
Candle closes at 1.0870 (30 pips below HL2)
✅ MSS confirmed (bearish)

Step 2: Identify the Institutional Footprint

What to Find:

Bearish OB (for bearish MSS):

The FINAL bullish candle before the MSS break
Often sits just above the broken HL
**This is where institution SOLD**

Example:

HL at 1.0900 was broken
Final bullish candle before break:
High: 1.0910
Low: 1.0895
**Bearish OB = 1.0895-1.0910**

FVG Created by MSS:

The break usually creates displacement
Check for gap between candles
**Entry zone refinement**

Step 3: Wait for the Pullback

DON'T chase the MSS break!

MSS breaks HL at 1.0900:
Price drops to 1.0820
❌ DON'T short at 1.0820 (already moved 80 pips)

Wait for pullback:
Price rallies back to 1.0890-1.0910 (Bearish OB zone)
✅ NOW short at OB mitigation

Why:

• Better entry price
• Tighter Stop Loss
• Superior R:R

Step 4: Execute at OB/FVG

Entry Methods:

Method A: OB 50%

Bearish OB: 1.0895-1.0910
Entry: 1.0902.5 (50%)
**Standard approach**

Method B: FVG 50%

FVG: 1.0900-1.0870
Entry: 1.0885 (50%)
**If FVG is cleaner than OB**

Method C: LTF Confirmation

Drop to M15
Wait for bearish MSS on M15 inside the H4 OB
Enter after M15 confirmation
**Most conservative**

Step 5: Set SL and Targets

Stop Loss:

Bearish OB: 1.0895-1.0910
Entry: 1.0902.5
SL: 1.0915 (5 pips above OB high)
**Objective invalidation**

Targets:

T1: Previous LL or next major support
T2: Unmitigated FVG below
T3: Major round number/psychological level
**Structured exits**

The Key Question:

"Did price break the swing point that DEFENDS the trend, or the swing point that EXTENDS the trend?"

In Uptrend:

Break ABOVE recent HH:

Structure: HL1 → HH1 → HL2 → HH2
Price breaks ABOVE HH2
= Extending the trend
= BOS (continuation) ✅
**Trade long on pullback**

Break BELOW recent HL:

Structure: HL1 → HH1 → HL2 → HH2
Price breaks BELOW HL2
= Breaking the trend defense
= MSS (reversal) ✅
**Trade short on pullback**

In Downtrend:

Break BELOW recent LL:

Structure: LH1 → LL1 → LH2 → LL2
Price breaks BELOW LL2
= Extending the trend
= BOS (continuation) ✅
**Trade short on pullback**

Break ABOVE recent LH:

Structure: LH1 → LL1 → LH2 → LL2
Price breaks ABOVE LH2
= Breaking the trend defense
= MSS (reversal) ✅
**Trade long on pullback**