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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
Identify the Trend
: Determine if itβs an uptrend or downtrend.
Watch the Appropriate Points
:
In an
uptrend
, focus on lows.
In a
downtrend
, focus on highs.
Confirmation
:
BoS to the upside requires closing above the most recent high.
BoS to the downside requires closing below the most recent low.
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
:
Find 10 examples of true Breaks of Structure.
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.
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Full transcript