Understanding Break of Structure in Trading

Feb 5, 2025

Boot Camp Day 6: Break of Structure in Trading

Introduction

  • Day 6 focuses on trading concepts, specifically "Break of Structure."
  • Aimed at beginners to understand foundational concepts before moving to advanced topics like liquidity.

Key Concepts

Trends

  • Trends: Move in higher highs & higher lows (uptrend) or lower lows & lower highs (downtrend).
  • High: Consists of a move up then a move down.
  • Low: Consists of a move down then a move up.

Understanding Highs and Lows

  • A high or low is formed by two candles.
  • High: One candle up (e.g., green), followed by one down (e.g., red).
  • Low: One candle down, followed by one up.
  • Candle wicks are used to determine the precise points of highs and lows.

Break of Structure (BoS)

Definition

  • Break of Structure: When a trend shifts direction.
    • To the Upside: Requires a candle closure (not just a wick) above a high.
    • To the Downside: Requires a candle closure below a low.

Importance of Candle Closure

  • A break of structure is confirmed by the body of a candle closing above/below the structure, not just wicks.

Process for Identifying Break of Structure

  1. Identify the Trend: Determine if it’s an uptrend or downtrend.
  2. Watch the Appropriate Points:
    • In an uptrend, focus on lows.
    • In a downtrend, focus on highs.
  3. Confirmation:
    • BoS to the upside requires closing above the most recent high.
    • BoS to the downside requires closing below the most recent low.
  4. Ignore Past Structures: Only focus on the most recent high/low.

Examples and Misconceptions

  • Consolidation: Not a trend, hence no BoS.
  • Fake Breaks: Occurs when only wicks surpass highs/lows without actual closure.
  • Real vs. Fake: Important to distinguish wicks from actual candle closures in determining BoS.

Homework

  • Assignment:
    1. Find 10 examples of true Breaks of Structure.
    2. Find 10 examples of fake Breaks of Structure or fake outs.
  • Purpose: To practice identifying real BoS and avoiding common beginner mistakes.

Conclusion

  • Understanding BoS is crucial for recognizing shifts in market trends.
  • Essential for predicting potential market direction changes.
  • Homework reinforces the ability to distinguish between actual and fake BoS events.