Reading Chart Structure: Swing Points, Trends, and Reversals on GBP/JPY
TL;DR:
- Chart structure is the skeleton of price action — without it, every other SMC concept fails
- This guide teaches you to read swing points, identify trends, and spot reversals on real GBP/JPY charts
- Learn the difference between valid and invalid swing points
- A clear structure read gives you direction, confidence, and precise entry/exit levels
What Is Chart Structure?
Chart structure is the pattern of swing highs and swing lows that price creates as it moves. By reading this pattern, you can determine the trend direction, identify potential reversal points, and find tradeable setups.
Key Takeaways:
- Structure = the arrangement of swing highs and lows
- Higher highs + higher lows = uptrend
- Lower highs + lower lows = downtrend
- Structure breaks (BOS/CHoCH) signal continuation or reversal
- Without structure, order blocks and FVGs have no context
How to Identify Valid Swing Points
Not every high or low is a valid swing point. A valid swing point requires:
- At least 2 candles on each side that are lower (for a high) or higher (for a low)
- A clear rejection — the swing candle should have a wick
- Significance — the swing should be visible on at least 2 timeframes
Invalid vs Valid Swing Points
| Invalid Swing | Valid Swing |
|--------------|-------------|
| Only 1 candle on each side | 2+ candles on each side |
| No wick (just a body high) | Clear wick (rejection) |
| Only visible on M5 | Visible on H1 and H4 |
| Part of a choppy range | Part of a clear trend |
The GBP/JPY Chart: November 2026
Let's read the structure of a real GBP/JPY H4 chart:
Step 1: Mark All Swing Points
| Swing | Price | Type | Valid? |
|-------|-------|------|--------|
| S1 | 200.50 | High | ✅ (3 candles below on each side) |
| S2 | 196.80 | Low | ✅ (4 candles above on each side) |
| S3 | 199.20 | High | ✅ (2 candles below on each side) |
| S4 | 195.50 | Low | ✅ (3 candles above on each side) |
| S5 | 197.80 | High | ✅ (2 candles below on each side) |
| S6 | 194.20 | Low | ✅ (3 candles above on each side) |
Step 2: Read the Structure
Highs: 200.50 → 199.20 → 197.80 (each lower than the previous = LOWER HIGHS)
Lows: 196.80 → 195.50 → 194.20 (each lower than the previous = LOWER LOWS)
Structure read: Lower highs + lower lows = DOWNTREND (Bearish)
Step 3: Identify the Dealing Range
- Swing high: 200.50 (S1)
- Swing low: 194.20 (S6)
- 50% equilibrium: (200.50 + 194.20) / 2 = 197.35
- Current price: 196.50 (below equilibrium = discount zone)
Wait — in a downtrend, the current price being in the discount zone means I should be looking for SELLS, not buys. Let me reconsider:
Actually, in a bearish trend, I want to SELL in the PREMIUM zone (above 50%). Price at 196.50 is below 197.35 (discount), so this is NOT the ideal zone for shorts. I should wait for price to retrace up to the premium zone (above 197.35) before looking for short entries.
Step 4: Identify Key Levels
- Bearish OB: 197.50-197.90 (last bullish candle before the displacement from 197.80 to 195.50)
- Bearish FVG: 197.20-197.60 (3-candle imbalance)
- SSL targets: 195.50 (S4), 194.20 (S6)
Step 5: Wait for Retracement
Price needs to retrace from 196.50 up to the bearish OB at 197.50-197.90 (premium zone) for a valid short entry.
Structure Break Detection
BOS (Break of Structure) — Continuation
If price closes below S6 (194.20), it's a bearish BOS — confirming the downtrend is continuing.
Action: Look for a retracement to the new bearish OB for a short entry.
CHoCH (Change of Character) — Reversal Warning
If price closes above S5 (197.80), it's a bullish CHoCH — first warning that the downtrend may be reversing.
Action: Don't trade the short anymore. Wait for MSS (second break above the next swing high) to confirm reversal.
MSS (Market Structure Shift) — Reversal Confirmed
If price closes above S3 (199.20) after the CHoCH, it's a bullish MSS — trend reversal confirmed.
Action: Look for long entries at bullish OBs in the discount zone.
Real Trade: GBP/JPY Structure-Based Short
Setup
Price retraced from 196.50 to 197.65 — tapping the bearish OB at 197.50-197.90 in the premium zone.
Entry
| Parameter | Value | Rationale |
|-----------|-------|-----------|
| Entry | 197.65 (bearish OB in premium) | Structure + OB + premium zone |
| Stop Loss | 198.30 (above OB + above S5) | Above the OB zone for invalidation |
| TP1 | 196.00 | Mid-range (previous low area) |
| TP2 | 195.50 | S4 (SSL target) |
| TP3 | 194.20 | S6 (larger SSL target) |
| R:R | 1:2.5 to TP1, 1:3.2 to TP2 | Risk 65 pips to gain 115-215 pips |
Result
- TP1 hit in 5 hours (+115 pips ✅)
- TP2 hit in 10 hours (+215 pips ✅)
- TP3 hit in 18 hours (+345 pips ✅)
Result: +345 pips from a structure-based trade.
Common Structure Reading Mistakes
- Marking too many swing points — Only mark significant swings (2+ candles on each side)
- Changing structure too quickly — A single CHoCH is a warning, not a confirmed reversal
- Ignoring the dealing range — Without knowing the 50% level, you can't identify premium/discount
- Not checking higher timeframes — H4 structure should align with D1 structure
- Using wicks instead of closes for breaks — Only candle CLOSES count for BOS/CHoCH
FAQ
Q: How many swing points should I mark?
A: 3-5 recent significant swings. More creates clutter and confusion.
Q: What if the structure is unclear?
A: If you can't clearly identify higher highs/lows or lower highs/lows, the market is ranging. Don't force a directional trade.
Q: How do I know if a swing point is "significant"?
A: It should have at least 2 candles on each side and be visible on at least 2 timeframes (e.g., visible on both H1 and H4).
Risk Disclaimer
⚠️ Trading involves significant risk. This guide is for educational purposes only. Past performance does not guarantee future results.
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