Do you want to trade like a pro? Then you need to learn the Break of Structures (BOS) Trading Strategy. It’s a powerful method that lets you catch the trend and ride the breakout. BOS is the bar that breaks the structure and creates a zone for trading. You need to follow some rules to enter and exit the trade. In this guide, you’ll find tips, examples, and secrets to make big profits with BOS. Don’t miss this chance to master the market with Price Action.
Key Point
Summary
What is a Break of Structure?
When price breaks above or below a significant swing point in the market structure.
How to Identify Breaks of Structure
Look for a close outside of a recent swing high or low. Intraday breaks are for short-term trades. Larger breaks for new trends.
Buy on upside break, place stop below structure. Sell on downside break, place stop above structure. Target 1:1 or 2:1 reward/risk.
Using Breaks of Structure
Signals potential trend changes early. Provides trade entry and stop loss points. Can define new support and resistance.
Limitations
Not all breaks result in continued trends. False breaks are common. Requires other confirmations.
A summary of the Break of Structure and its main features is given in this table.
What is the Break of Structure (BOS) Trade Strategy?
BOS is a trading idea that happens when the market moves a lot. This means the trend is changing or staying the same, up or down. For example, in an uptrend, BOS means breaking past old highs to make new highs.
In a downtrend, it means breaking past old lows to make new lows. Each BOS event helps the trend go on, making a new “Higher High” (HH) or a new “Lower Low” (LL).
This is like finding a gold mine for smart traders. It’s very important for good trades and can help you make more money. It’s a vital element in high-value setups and can significantly enhance the chances of profitable trades.
However, the key this concept trading lies in a simple yet meticulous approach that revolves around adhering to fundamental rules, precise market observation, and a sound trading plan.
Let’s zoom in on the action step by step. We have a downtrend. Market Structure Break(MSB) breaks its trend. How can we tell if the price has started a new trend? This is where swing skills come in handy.
We need to know the Higher Highs and Lower Lows, the price’s swing points. Break of Structure happens when it crosses every swing point we set and makes new ones.
We can see it with one smooth move in the high time frame, but the real party is in the low time. I call it a party because here we have the most liquidity sweeps, zigzags and manipulations like a tipsy driver.
Valid BOS vs Invalid BOS:
Valid BOS vs Invalid BOS
We have one rule only, Break of Structure must be with the candle’s close. Breaks with Wick (shadow, tail or whatever) are no good. This is clearly necessary in both the falling trend and the rising trend. It is our toughest rule.
Wick means no break, body means break.
I can even add some fun to beat stressful trading.
😦 When you see a wick, don’t be quick To enter a trade, you might get tricked
🥳 But when you see a body, get ready To follow the trend, and make some money
Types of Break of Structure:
Break of Structure in Uptrend:
Break of Structure in Downtrend:
How to Trade Using the Break of Structure Strategy?
Entry: The break of the old swing must be confirmed by the close of a candlestick. This is a signal for entry. If this candle is a strong candle, it means it is more reassuring. Another option is you should look for the lower time frame after this reaction occurs. You can set up from a reversal candlestick or character change in the small time frame.
Stop–Loss (SL): If we used reversal structures, we should place stop points according to reversal strategies. If the previous swing point is not too far from our entry point and leaves a meaningful profit, of course, that level is also valid.
Take-Profit (TP): It is very difficult to determine future swing points for TP. Instead of using your imagination, the supply/demand zones of the price in the higher time frame can be a beacon for us. These are perfect areas for taking profit or dividing the profit.
Top 6 Tips for Trading Break of Structure:
Identifying the Trend: The first step is recognizing the underlying market trend. In a bullish market, this is characterized by a pattern of “Higher Highs” (HH) and “Higher Lows” (HL) in price action. Conversely, in a bearish market, you’ll observe a series of “Lower Highs” (LH) and “Lower Lows” (LL).
Focus on Higher Time Frames: For a comprehensive analysis, start by examining higher time frames. This provides a broader perspective and a clearer view of the overall market trend. Higher time frames reveal the long-term trajectory of the market and guide your trading decisions.
Identifying Entry Points: Once the trend is established, traders can move to lower time frames to pinpoint potential entry points. Break of Structure trading thrives on precision, so traders must look for favorable conditions to execute their trades. This may involve monitoring specific chart patterns, or other price action analysis concepts.
Supply and Demand Zones: To strengthen your Break of Structure trading strategy, consider identifying valid supply and demand zones. These zones offer valuable insights into where the market may react strongly, presenting opportunities to enter the market at a discounted price or exit at a premium.
A Solid Plan:The cornerstone of Break of Structure trading is a well-structured trading plan. This plan should encompass entry and exit strategies, risk management, and a clear understanding of the market conditions. Even if a trade results in a small loss, a well-executed plan can still lead to long-term success.
Superficial Analysis: Traders heavily rely on analyzing price action. They look for patterns, trends, and candlestick formations that suggest a potential structure break. This analysis involves a deep understanding of how price moves within the market.
Common Misconceptions When Trading with Break of Structure:
Misconception #1: All BOS are valid.
Not all of them are created equal. Some are true breakouts, while others are false breakouts. It is important to be able to identify valid breakouts from invalid breakouts in order to avoid false breakouts and trade them profitably.
BOS with body, no BOS with wick
Misconception #2: It is a magic bullet.
It is a powerful price action tool, but it is not a magic bullet. It will not guarantee profitable trades. That is important to use it in conjunction with other price action concepts and risk management techniques to increase your chances of success.
To avoid overtrading, it is important to have a trading plan and stick to it. Your trading plan should include criteria for identifying valid one, as well as entry and exit strategies.
Misconception #3: BOS is only for day traders.
It can be used by traders of all timeframes, from day traders to swing traders to position traders. The key is to adjust your trading strategy to match your timeframe.
To trade that successfully, it is important to understand the concept of timeframes. Timeframes refer to the length of time that a candle represents. For example, a 1-minute timeframe candle represents one minute of price action, while a daily timeframe candle represents one day of price action.
When trading breaks, it is important to choose a timeframe that is appropriate for your trading style and risk tolerance.
For example, day traders may prefer to trade breaks on lower timeframes such as 1-minute or 5-minute timeframes, while swing traders may prefer to trade breaks on higher timeframes such as daily or weekly timeframes.
Misconception #4: BOS is complex and difficult to learn.
It is a relatively simple price action tool to learn. There are many resources available online and in books that can teach you how to identify and trade it.
If you are interested in learning more about this strategy, there are many resources available to you. You can find books, articles, and videos online that can teach you the basics of that.
Misconception #5: BOS is a risky trading strategy.
This can be risky, but it can also be very rewarding. The key is to manage your risk carefully.
To manage your risk carefully when trading Break of Structure, it is important to use stop-loss orders. A stop-loss order is an order to sell a security if it falls below a certain price. This will help to limit your losses in case of a false breakout.
It is also important to use proper position sizing. Position sizing refers to the amount of money that you risk on any single trade. It is important to risk only a small percentage of your capital on any single trade. This will help to protect your account from large losses.
Conclusion:
Financial success blooms in the garden of adaptability and opportunity. Break of Structures trading strategy is a meticulous gardener, helping traders identify and cultivate market shifts.
By understanding the market’s direction, focusing on longer time horizons, discerning opportune entry points, and practicing sound risk management, traders can harness the power of this method to harvest profitability and make wiser decisions.
This video shows you the concept with examples that make sense to anyone.
FAQs:
What does BOS mean in SMC?
In Smart Money Concept terminology, the abbreviation for Break of Structure is BOS. It is the significant price movement that ensures the continuation of the trend. It represents down breaks in a falling trend and up breaks in a rising trend.
What is a break in structure to the downside?
It occurs in a bearish trend and indicates that the price has the potential to decline further. You can use it for direction determination.
What is a minor break of structure?
It is the expression of all the unique rules that continue the upward or downward trend in time intervals such as 15-minute, 5-minute. Small changes create big changes.
What happens after break of structure?
It strengthens the trend. During this phase, traders can easily use special concepts that continue the trend such as FTR , Hidden Base, Blind Spot, Yin-Yang Pattern.
What is the difference between BOS and Breaker Block?
While BOS is a breakout that continues the trend, Breaker Block is a breakout that occurs against the trend and requires a market breakout.
Brian Miller is a Forex trader who uses price action, a method based on real prices instead of indicators. He learned this technique from hedge fund experts and has been trading full-time since 2011. He has a finance degree and writes about Forex on various websites. On this website, he shows his price action system and how it works in different markets.
