Overview
This lecture introduces the concept of structure mapping in SMC (Smart Money Concepts), focusing on its main components: Break of Structure (BOS), Change of Character (Choch), and Inducement (IDM), as well as methods for identifying market trends and key points on price charts.
Structure Mapping Components
- Structure mapping is based on three main points: Break of Structure, Change of Character, and Inducement (IDM).
- These three components combine to form the foundation of analyzing price movement in SMC.
Break of Structure (BOS)
- BOS occurs when price in an uptrend breaks previous highs repeatedly, confirming trend continuation.
- In a downtrend, BOS is when price breaks previous lows, also confirming trend continuation.
- BOS marks the continuation pattern in both uptrends and downtrends.
Change of Character (Choch)
- Choch happens when the trend reverses, such as breaking a higher low in an uptrend or a lower high in a downtrend.
- Choch marks the turning point and signals a trend reversal.
Inducement (IDM)
- IDM is the first internal swing to the left of a new high or low, confirming the validity of a higher high or lower low.
- IDM helps identify the correct swing points for marking BOS and Choch on the chart.
Marking and Validating Structure
- Higher highs and higher lows are only confirmed after specific IDM swings and BOS.
- Always confirm swing points using left-side swings, not right-side swings.
- Body closing is necessary for confirming BOS and Choch but not for IDM swings.
Valid and Invalid Swings
- Valid swings require price to grab liquidity (break the high/low of the previous candle) and close with the body above or below that point.
- There are six valid and six invalid swing patterns; valid ones involve clear body closings after liquidity grabs.
- Invalid swings include inside bars not breaking highs/lows, or candles without body closes after grabs.
Structure Mapping in Practice
- Begin structure mapping from the most significant high or low on a higher time frame by zooming out on the chart.
- Mark each swing with IDM, BOS, and Choch for trend analysis.
- Always prioritize the nearest left swing for IDM and Choch identification.
- Ignore swings that do not meet body close or liquidity grab criteria.
Key Terms & Definitions
- Break of Structure (BOS) — When price breaks previous highs (uptrend) or lows (downtrend), confirming continuation.
- Change of Character (Choch) — Point at which trend reverses, breaking a key higher low or lower high.
- Inducement (IDM) — The first minor swing before a new high/low, confirming the swing’s validity.
- Liquidity Grab — When price breaks the high/low of the previous candle to gather orders.
- Inside Bar — A candle completely within the range of the previous candle, often ignored for IDM.
- Valid Swing — A swing where the price grabs liquidity and body closes beyond the grab point.
- Invalid Swing — A swing not meeting liquidity or closing criteria, often with inside bars.
Action Items / Next Steps
- Practice identifying BOS, Choch, and IDM in live charts on higher and lower timeframes.
- Review and list valid and invalid swing patterns from your charts.
- Prepare to study order blocks and advanced SMC concepts in the next lecture.