Overview
This lecture covers the concepts and rules of structure mapping in trading, focusing on market structure, swing identification, and key concepts like Break of Structure (BoS), Change of Character (ChoCh), Inducement (Induction), and the application of ICT (Inner Circle Trading) and SMC (Smart Money Concepts).
Structure Mapping Basics
- Structure mapping helps identify market direction—uptrend, downtrend, or sideways (consolidation).
- A market structure is built from swings, which are sequences of higher highs/lows or lower highs/lows.
- Three main points in structure mapping: Break of Structure (BoS), Change of Character (ChoCh), and Induction.
Swings and Candle Formation
- A valid swing is identified by a three-candle formation where the middle candle is the highest (uptrend) or lowest (downtrend).
- Swings are categorized as major (significant trend change) or minor (smaller retracements).
- Swings and structure mapping are fractal, working in all timeframes.
Break of Structure (BoS)
- BoS occurs when price closes beyond a previous swing high (uptrend) or low (downtrend).
- Valid BoS requires a closing candle above/below the swing point, not just a wick (sweep).
- BoS may signal trend continuation or reversal.
Change of Character (ChoCh)
- ChoCh happens when the trend shifts (e.g., from uptrend to downtrend) after a BoS at a key level.
- Confirmed with a candle closing beyond major swing highs/lows.
Induction (Inducement)
- Induction is a market trap set to tempt traders to enter positions before the real move.
- Induction occurs at minor swings and doesn’t require a closing candle like BoS.
- Inducement often sweeps liquidity before the main direction move.
Swing and Major/Minor Structure
- Major swings indicate significant market direction; minor swings show minor pullbacks.
- Mapping requires identifying both and noting where BoS or ChoCh occurs.
Application & Trading Logic
- Combine structure mapping with trading models (POI, order blocks, liquidity pools).
- Wait for confirmation (BoS, ChoCh) before entering trades; avoid trading only on inducements.
- Set stop loss at the swing low/high for risk management.
Key Terms & Definitions
- Structure Mapping — Identifying market direction and trend shifts using swing points.
- Swing — A point formed by three candles, representing a local high/low.
- Break of Structure (BoS) — Market moves past and closes above/below the previous swing point.
- Change of Character (ChoCh) — A confirmed shift in trend signaled by BoS at a swing.
- Induction (Inducement) — Price action designed to trap traders and sweep liquidity.
- ICT (Inner Circle Trading) — A trading concept focused on smart money and market structure.
- SMC (Smart Money Concepts) — A trading approach analyzing institutional activity and market structure.
Action Items / Next Steps
- Practice identifying swings, BoS, ChoCh, and inducements on different timeframes.
- Watch both lecture videos again for clarity before the next class.
- Prepare questions on structure mapping and points of confusion for the next session.
- Next class is on Saturday—review these notes ahead of time.