"Any time there is a daily low with higher lows on both sides of it, that low will be a short-term low. We know this because a study of market action will show that prices descended in the low day, then failed to make a new low, and thus turned up, marking that ultimate low as a short-term point. A short-term market high is just the opposite. Here we will see a high with lower highs on both sides of it. What this says is that prices rallied up to the zenith of that middle day, then began to move back down, and in the process formed a short-term high. For our purposes in identifying short-term swing points, we will simply ignore inside days and the possible short-term points they produce." This is how Larry Williams defined market structure. His concept is universal and applies to all bars of all time frames.

  • Short-Term High (STH) is a bar with a high greater than or equal to the high of the bar to the left and greater than the bar high to the right. Neighboring bars should not be inside. If they are inside bars, the bars that follow them should be analyzed.
  • Medium-Term High (MTH) has Short-Term Highs to the left and and to the right that are below the high of this bar.
  • Long-Term High (LTH) has Medium-Term Highs to the left and and to the right that are below the high of this bar.

And for the lows it’s all vice versa: 

  • Short-Term Low (STL) = bar with higher lows on both sides
  • Intermediate-Term Low (ITL) = higher STL on both sides
  • Long-Term Low (LTL) = higher ITL on both sides

In other words: 3 bar patterns are the smallest fractals and building blocks of market structure. Since price is always either in consolidation, in an uptrend or in a downtrend 3 successive price bars must form either a directional pattern (higher highs, higher lows or vice versa), a continuation pattern (inside bar) or a reversal pattern (outside bar, pin bar, head & shoulder, M&W patterns):

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