Hello, I am nao.
Last time I explained how to read market structure (HH, HL, LH, LL). This time is a continuation, where we will learn two concepts: “BOS” and “CHoCH.”
Understanding this will allow you to clearly determine whether the current trend is continuing or has turned.
What is BOS (Break of Structure)?
BOS means“structure destruction”in translation.
This is when, in an uptrend, you break above the most recent high (HH) with a real body, or in a downtrend, you break below the most recent low (LL) with a real body. That is BOS.
“If the previous high is updated with a real body, the uptrend is still continuing” — that is evidence.
In other wordsBOS is a “trend continuation signal”to be used.
Once BOS is confirmed, you enter the stage of looking for pullback entries in the direction of the trend.
What is CHoCH (Change of Character)?
CHoCH means“character change”in translation.
In an uptrend, if you intrusively break down below the most recent low (HL) with a real body, or in a downtrend you break above the most recent high (LH) with a real body, this is CHoCH.
When the uptrend continues, lows should keep rising. Yet if suddenly you break the previous low—that is the first sign that the upward momentum has broken.
CHoCH is used as a “prelude to trend reversal.”
If CHoCH appears, how to move
“It is dangerous to declare an immediate reversal just because CHoCH appeared”— you often hear this. Indeed. However,“waiting until you are certain” would make your entry too late.
My practical approach is as follows.
① CHoCH occurs (low break) → recognize as “potential reversal” and consider early entry with small lot
② If an LH forms and BOS breaks below the previous low → judge as “reversal confirmed” and add more capital
③ Increase positions on pullbacks after the reversal (near LH)
In short, it’s practical to not go all-in on CHoCH nor wait completely for BOS confirmation, but to step in gradually.
Enter with small risk, increase size once confirmations are obtained. This is the key to applying SMC in practice.
Detailed entry specifics will be covered in Part 3 and beyond. First, make today’s goal to “distinguish CHoCH from BOS.”
Beware of wicks
A common question is how to treat cases where only a wick updates a high/low.
My view is as follows:
If the wick temporarily breaks out—acknowledge that a destruction occurred. However, if the body is not confirmed, it is not called BOS. Also, it has not become CHoCH, so we do not judge that the trend has reversed.
In other words“There was a break, but the trend continuation or reversal cannot yet be determined; be cautious.”This is how it should be treated.
GOLD tends to have long wicks in particular. If you react impulsively when only the wick moves, you’ll get burned when price returns. Waiting for the real body to confirm is especially important in GOLD trading.
Summary: Today’s three key points
①BOS (structure destruction) indicates trend “continuation.”It occurs when the real body updates the most recent high/low.
②CHoCH (character change) indicates trend “prelude to reversal.”When CHoCH appears, respond early with small lots, and add to positions once BOS confirms; this staged approach is practical.
③Wicks breaking do not imply BOS/CHoCH; it’s a state of “destruction occurred but trend stance is uncertain.”Wait for real-body confirmation for trend judgment. Especially with GOLD, calm judgment is crucial due to long wicks.
Next time we’ll discuss Liquidity. Why price gravitates to places where many traders place stops. I will explain the stop-hunt mechanism.
Understanding why the chart moves here changes trading at a fundamental level. Please check next time as well!
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nao｜FX专業 trader and EA developer
Realizing that my self-taught winning patterns were later called “SMC” led me to start spreading SMC widely.
Specializing in GOLD scalping and day trading. While selling the EA “tundere series” on GoGoJungle,
I developed the SMC visualization indicator “nao_smc_mt5” that maps the same judgment criteria onto charts.
From structure, zones, 0.705, to the next breakout prediction—in the chart the moment it opens.
▶ Details for nao_smc_mt5 here (GoGoJungle sales page)
