Imagine the financial market as a vast ocean, not bounded by rigid geometrical forms like circles, rectangles, or triangles but instead fluctuating and pulsating like waves. As an SMC trader, your objective is to mirror the professional surfer Gabriel Medina, gracefully riding the crests and troughs of these market waves. The key, however, is in identifying the perfect wave – one with just the right balance of strength and momentum.

Just as you wouldn't leap onto every wave you spot in the sea, you mustn't rush into every market opportunity that seems to surface. Some waves will be dwarfed by others, their potential petering out prematurely, while others may simply lack the requisite energy to give you a profitable ride. This is why it is crucial to assimilate all available information before making a decision.

Let's put an end to the surfing metaphor now and get to the heart of the matter. What I've been alluding to is that financial markets undulate in wave-like motions, as depicted in the image below.

You observe a peak (high) and a trough (low), and based on these movements, you anticipate the next trough to be eradicated to sustain the trend, a concept known as Break of Structure (BOS).

Before we delve further into the mechanics of reading market structure, let's familiarize ourselves with some essential trading jargon. Here's a quick glossary of terms we'll be using often, so you won't be left scratching your head midway.

‍

Terms Market Structure SMC

If you continue reading the article, you will discover what every term means. So I suggest you to keep reading!

‍

1. Internal structure

2. Swing structure

3. Range

4. (Swing and Internal) Break of structure: BOS

5. (Swing and Internal)Change of Character: CHoCH

‍

Internal/ swing Structure

‍

Think of swing structures as a house, and internal structures as the stuff inside the house. Just like the furniture lives inside the house, the internal structure lives inside the swing structure. And if you consider price as something that can be broken down into smaller bits (like a fractal), then the internal structure is just the swing structure seen at a smaller scale or time.

‍

Range

The term 'range' refers to the specific segment of the swing structure within which price movements are contained. Essentially, it designates the highest and lowest points of trade, forming the boundaries or 'range'. This is akin to a playing field where the action, in this case, price fluctuations, takes place.

‍

Break of Structure (swing and internal)

The phrase 'break of structure' denotes the point at which either a high or low limit is surpassed. This typically signifies the emergence of a new trading environment or 'range'. Consider it a change of the status quo, a shift to a new chapter in the trading narrative, that comes into play when an existing high or low barrier is breached.

‍

Change of Character (swing and internal)

The 'change of character' doesn't continue the old patterns like the 'break of structure' does, but rather indicates a pivot in the trend. It's akin to a change in the plot of a story, where the narrative takes an unexpected turn, marking a departure from the previous trend in the trading landscape.

‍

‍

The SMC indicator will plots this for you, with other concepts combined. See here more information about the SMC Indicator.