Hello, this is nao.
In the last article, we explained how to read the market structure (HH, HL, LH, LL). In this continuation, we will learn two concepts: “BOS” and “CHoCH.”
Understanding these will make it clear whether the current trend is continuing or has turned.
■ What is BOS (Break of Structure)?
BOS stands for“Break of Structure”.
It is when the price price breaks above the most recent high (HH) with a real body during an uptrend, or breaks below the most recent low (LL) with a real body during a downtrend. That is BOS.
“Updating the previous high with a real body = the uptrend is still continuing” evidence.
In other wordsBOS is a “trend continuation signal” to use.
Once BOS is confirmed, you can enter a pullback in the direction of the trend.
■ What is CHoCH (Change of Character)?
CHoCH stands for“Character Change”.
It is when the price breaks below the most recent low (HL) with a real body in an uptrend, or breaks above the most recent high (LH) with a real body in a downtrend. This is CHoCH.
When the uptrend continues, the lows should keep rising. But if suddenly the previous low is broken—this is the first sign that the upward momentum has weakened.
CHoCH is used as a “premonition of a trend reversal.”.
■ If CHoCH appears, how to act
“It is dangerous to declare an immediate reversal just because CHoCH appeared” is a common concern. Indeed, that is true. However,“waiting until you are certain” would make the entry too late.
My actual approach is as follows.
① CHoCH occurs (low broken) → recognize “possibility of a reversal” and consider early entry with a small lot
② If LH forms and a BOS breaks the previous low → judge “reversal confirmed” and add a larger position
③ Increase position again on the pullback after the reversal (near LH)
In other words, it is not about “full entry at CHoCH” nor “wait until BOS is confirmed”; a staged approach is more practical.
Enter with small risk and increase size once confirmation is obtained. This is the key to applying SMC in practice.
Details of actual entries will be explained from the next installment. For now, make it your goal to distinguish CHoCH from BOS.
■ Be careful of wicks
A common question is how to treat cases where the high/low is updated only by a wick.
My view is as follows.
If it temporarily breaks by a wick—“the break has occurred” is recognized. However, if the body has not been 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“The break happened, but the trend continuation vs reversal is not yet determined; a state to watch carefully.”.
GOLD tends to have long wicks. If you panic and chase movement driven solely by wicks, you will get hurt when price returns. Waiting for a real body confirmation is especially important in GOLD trading.
■ Summary: Today's 3 Key Points
①BOS (Break of Structure) indicates trend “continuation.” It occurs when the real body updates the most recent high/low.
②CHoCH (Character Change) indicates trend “premonition of reversal.” A practical approach is to respond with a small lot when CHoCH appears, and add a larger position when BOS confirms.
③Wick breaks are “destruction occurs without BOS/CHoCH.” Wait for confirmation of the real body to judge the trend. In GOLD, wicks are long, so calm judgment is especially important.
Next time, we will discuss Liquidity. Why price is drawn to the places where everyone places stops. We will explain the mechanism of stop hunts.
Understanding why the chart moves at certain points will fundamentally change your trading. Please check next time as well!
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【Author Profile】
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nao｜FX full-time trader for 16 years, EA developer
Specializing in GOLD scalping and day trading based on SMC/ICT.
While trading, I faced the problem of “reading correctly yet being mentally unstable,” so I developed the hybrid tool “tundere【R】” combining discretionary entries with EA automatic management.
It provides a system to eliminate the fear of losses and maximize profits during favorable trends for GOLD traders.
▶ Details of tundere【R】here
https://www.gogojungle.co.jp/tools/indicators/71019?via=toppage_recentViewed
