Break of Structure (BOS) Explained

Break of Structure (BOS) Explained

A Break of Structures (BOS) is a trading concept used by price action traders (also known as SMC or ICT Traders). A BOS is used to confirm that an asset's trend will continue to move in its current direction. A bullish BOS indicates that an asset's price will continue increasing, while a bearish BOS indicates that it will continue to decrease.

How to Identify a BOS

Locating a Break of Structure (BOS)

Bullish BOS

Bullish Break of Structure (BOS)

A bullish BOS is found by locating a low higher than the previous low (a higher low, HL) then a high higher than the previous high (a higher high, HH).

Bearish BOS

Bearish Break of Structure (BOS)

A bearish BOS is found by locating a high lower than the previous high (a lower high, LH) then a low lower than the previous low (a lower low, LL).

Trading using a Break of Structures (BOS)

Bullish and bearish BOS are not used as entry and exit points; instead, they are used as confirmation that the current market structure will continue. This means that when a bullish BOS is formed on a chart, traders who are in a bullish position will maintain their position in the market and not sell. Likewise, when a bearish BOS forms traders who are shorting the market will not exit their positions, as the bearish BOS indicates a continuation of the downward movement of the price.

Common Strategies Using BOS

Break of strcucture (BOS) and Change of Character (ChoCh) Strategy

BOS are used in strategies with other price action formations. One of the most common strategies is using a Change of Character (ChoCh) or Change of Character Plus (ChoCh+) in combination with a BOS. A ChoCh signals a change in market structure from bullish to bearish or vice versa. Traders will enter a buy position at the formation of a bullish ChoCh, expecting the previous down trend to end and a new up trend to start. After entering their position, traders will use the formation of a bullish BOS as confirmation of their bullish position. A trader will exit their strategy when a bearish ChoCh forms, signaling that the bullish trend is reversing, or when the price rises into an area of resistance such as a supply zone, a bearish fair value gap, or a bearish order block for example.

The Theory behind the Break of Structure (BOS)

BOS is based on the concept of liquidity and liquidity hunting (also referred to as STOP hunting). When traders enter the market, they set STOPs--either a take profit stop or a stop loss, depending on how well the trade has gone. For example, if stock XYZ is moving from $10 to $15 over a period, many traders will pile in to buy shares, meaning that there are far more buyers than sellers of the stock, so price rises quickly to meet demand. Say that traders who have already entered at $10 set STOPs at around $13. Buyers, wanting to get in at a price better than $15, then stop buying. This causes a temporary pull back, and price decreases. When the stops set by earlier buyers are hit, triggering automatic sell orders, the waiting buyers are able to enter the market easily at a discounted price with the increase of liquidity. Assume that the price then rises past $15 to $17. The higher low (HL) is $13 for the BOS, and the higher high (HH) is $17. If the price had fallen past $13 to down below $10, it would mean that buyers no longer want the stock for more than $10, so an uptrend past $10 is unlikely. If the price did not move past $15 to 17$, it would indicate that buyers do not want the stock at a price higher than $15 and that a continued uptrend is unlikely. For this reason, an HH and an LL must both be formed for a bullish BOS.

FAQ

What is the difference between a break of structure (BOS) and a market structure break (MSB)?

Terms in price action trading are often confused. A BOS signals continuation of the current market structure, whereas an MSB signals a strong reversal of market structure. An MSB is equivalent to a ChoCh+, as it signals a strong reversal in the current market structure.

Is Break of Structure (BOS) an ICT concept?

No, BOS is a Smart Money Concept (SMC). ICT has many concepts similar to SMC, so this can be confusing. BOS is most similar to the ICT concept of inducement.

What does BOS stand for in trading?

BOS stands for a break of structure in trading. It is a concept used by price action traders (also known as SMC traders or ICT traders).

What are the best timeframes for the Break of Structure (BOS)?

BOS should be traded on intraday timeframes, meaning timeframes of less than one day. The most common timeframes used for ICT/SMC concepts are the 30, 15 and 5 minute timeframes.

What are the best stocks or securities for Break of Structures (BOS)?

Stocks, crypto currencies and futures actively traded by 'Smart Money' Institutions are the best for using BOS. Stocks within the S&P 500, which have a relatively high daily trading volume, are a good place to start.

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