Overview
This lecture covers the concept of break of structure (BOS) in trading, focusing on trend identification, high and low formation, and how to correctly spot BOS using candlestick closings.
Understanding Trends and Highs/Lows
- An uptrend is defined by higher highs and higher lows; a downtrend by lower lows and lower highs.
- A high forms when price moves up, then down (requires two candles).
- A low forms when price moves down, then up (requires two candles).
- The high/low is marked at the highest/lowest wick between the two candles forming them.
- Not all highs/lows look the same; focus on the candlestick pattern, not the visual symmetry.
What is a Break of Structure (BOS)?
- BOS signals a shift in the market trend (from uptrend to downtrend or vice versa).
- In an uptrend, BOS occurs when a candle fully closes below the most recent low.
- In a downtrend, BOS occurs when a candle fully closes above the most recent high.
- Only candle body closures count for BOS, not wicks.
How to Spot a Break of Structure
- Step 1: Identify the current trend (uptrend or downtrend).
- Step 2: In an uptrend, monitor the most recent lows for downward break (candle closure below low).
- Step 3: In a downtrend, monitor the most recent highs for upward break (candle closure above high).
- Step 4: Ignore previous highs or lows once a new one forms; only the most recent matters.
- Step 5: Consolidation (sideways markets) lacks clear BOS and is not suitable for trend trading.
Common Mistakes & Fake Breaks
- Do not mistake wick breaks (where only the wick crosses a high/low) as BOS—wait for full candle closes.
- Many traders get faked out by liquidity sweeps where price wicks past a level but closes back within range.
- BOS on lower timeframes may just be a retracement if higher timeframes maintain the trend.
Key Terms & Definitions
- Trend — General direction of market movement, categorized as uptrend or downtrend.
- High/Low — Peaks (highs) and valleys (lows) in price, defined by two-candle patterns.
- Break of Structure (BOS) — A confirmed change in trend direction, marked by a candle body closing beyond a key high or low.
- Liquidity Sweep — A wick that temporarily breaks a high/low without closing beyond it, often faking out traders.
Action Items / Next Steps
- Find 10 real examples of break of structure on trading charts.
- Find 10 examples of fake break of structure (e.g., wick breaks without candle closure).
- Complete both assignments before the next lecture.