Break of Structure is a crucial element in Smart Money Concepts structure mapping.
It is an essential element of many SMC strategies that is applied for making accurate predictions and spotting the best trading entries.
In this article, I will explain to you what is Break of Structure in trading (BoS), how to identify and trade it.
SMC Trend Analysis
In order to understand the idea of Break of Structure,
we will start our discussion with market trend analysis.
In order to identify the market trend with Smart Money Concepts, one should analyze the legs of the price movement and their highs and lows.
According to classic SMC rules, we say that the market trend is bullish if the price keeps setting new higher highs and new higher lows.
We consider the market trend to be bearish, if the price keeps updating lower lows and lower highs.
What is Break of Structure?
After the price sets a higher high in a bullish trend, at some moment it starts a correctional movement.
After a completion of a correction, the price sets a higher low, and a bullish trend continues.
The price level from where the market initiates a correction will be considered to be an important structure.
A bullish breakout of such a price level after a completion of a correction will be a Break of Structure BoS in Smart Money Concept trading.
After the price sets a lower low in a bearish trend, at some moment it starts a correctional movement.
After a completion of a correction, the price sets a lower high, and a bearish trend continues.
The price level from where the market initiates a correction will be considered to be an important structure.
A bearish breakout of such a price level after a completion of a correction will be a Break of Structure BoS in Smart Money Concept trading.
What Break of Structure means?
Why Break of Structure BoS is so important event?
Break of Structure signifies the trend continuation.
In a bullish trend, it confirms the strength of the buyers
and indicates that with a high probability the trend will continue.
In a bearish trend, it confirms the strength of the sellers
and indicates that with a high probability, bearish trend will continue.
Confirmation
Always remember, that in order to confirm the break of structure in a bearish trend, the candle should strictly close below that.
In the example about, you can see that EURNZD is trading in a bearish trend. After a completion of a correctional movement, the price dropped and set a new low. But the candle did not manage to close below that. For us, such a Break of Structure is not valid.
Only when the candle closed below the underlined structure, BoS is confirmed.
In a bullish trend, the same logic will be applied.
We will consider the Break of Structure to be valid only when a candle closes above that. How to Apply Break of Structure
Here is a very efficient way to apply Break of Structure in Smart Money Concept trading.
Once you spotted a Break of Structure in a bullish trend,
you can buy the market, expecting that a bullish trend will continue and that the price will go much higher.
Above, you can see that GBPAUD is trading in a strong bullish trend and the price just set a new higher high with a Break of Structure.
For us, it is a signal that the market will go much higher.
You can see that the market went up, and a bullish trend continued.
Once you spotted a Break of Structure in a bearish trend,
you can sell the market, anticipating that a bearish trend will continue and that the price will go much lower.
In the example above, USDCHF is trading in a bearish trend and see a confirmed Break of Structure.
That was an important sign of strength of the sellers, and the market dropped lower then.
Break of Structure BoS is an essential element in Smart Money Concept structure mapping and trend analysis.
Its understanding will help you to predict coming bullish and bearish waves and feel the strength of a bullish or bearish momentum
