Trading Boot Camp: Day 6

Break of Structure (BoS)

Context & Goals

• Topic: Break of Structure (BoS)
• Goal: Understand BoS to transition from discussing basic trading elements like candlesticks and trends to more advanced concepts such as liquidity.

Key Concepts

1. Trends Recap:

   • Trends: Higher highs and higher lows (uptrend); Lower highs and lower lows (downtrend).

2. Highs and Lows:

   • High: Move up followed by a move down; identified by the highest candle wick of the two consecutive candles.
   • Low: Move down followed by a move up; identified by the lowest candle wick of the two consecutive candles.
   • Example: Blue and black candles used to illustrate highs and lows regardless of visual perfection.

3. Break of Structure Definition:

   • BoS: A shift in the current trend indicated by a break in the formed highs and lows structure.
   • Uptrend to Downtrend: Requires a lower low (closed candle below the most recent low).
   • Downtrend to Uptrend: Requires a higher high (closed candle above the most recent high).

Detailed Explanation

1. Identifying Highs and Lows:

   • High: Blue candle up followed by a black candle down; the highest wick between the two is considered the high.
   • Low: Black candle down followed by a blue candle up; the lowest wick between the two is considered the low.

2. Break of Structure (Uptrend):

   • BoS detected when a candle closes below the most recent low in an uptrend.
   • Example: An uptrend continuing until a candle closes below the previous low confirms the BoS.

3. Break of Structure (Downtrend):

   • BoS detected when a candle closes above the most recent high in a downtrend.
   • Example: A downtrend continuing until a candle closes above the previous high indicates the BoS.

Practical Examples

1. Charts Analysis:
   • Review of different charts to highlight highs and lows and observe break of structures.
2. Common Mistakes:
   • Beginners often mistake just wicks above/below highs/lows as BoS. Closure by the candle body is necessary for confirmation.

Steps to Identify BoS

1. Identify the Trend: Determine if it is an uptrend or downtrend.
2. Watch Recent Highs and Lows: Focus on the most recent highs in downtrends, lows in uptrends.
3. Candle Closure Confirmation: Ensure a candle body closure above recent high (for upswing) or below recent low (for downswing) for BoS confirmation.
4. Ignore Non-Closures: Disregard wicks that may fake out as BoS without candle body closures.
5. Use Checklist:
   • 5-step formula created for identifying BoS.
   • Identify the trend.
   • Watch recent highs/lows based on trend.
   • Closure confirmation of the candle body.

Homework

1. Find Examples: Identify 10 real BoS and 10 potential fake outs in the market charts.
2. Validate Understanding: Ensure correct identification using the step-by-step formula.

Conclusion

• Review concepts of highs and lows, BoS, and apply through chart analysis and homework tasks.