Dear traders,
To really understand how Smart Money moves in the Forex market, you need to be able to read changes in market structure the right way. That’s where the concept of Break of Structure (BOS) comes in. It plays a key role for traders who follow the Smart Money Concepts (SMC) approach, especially when making trading decisions. A Break of Structure basically helps traders figure out if a trend is likely to continue or if the market is about to change direction — all by analyzing shifts in the market's structure. So, what exactly is BOS, and why is it so important?
What is Break of Structure (BOS)?
Break of Structure (BOS) is a key concept that helps trend-following traders shape their strategies in the financial markets. A BOS happens when the market breaks through a key level in its current structure. In simple terms, it's when the price moves past a significant previous high or low—which signals a possible shift or continuation in trend direction. In other words, a Break of Structure (BOS) is when the price breaks a clear higher high (HH) or lower low (LL), creating a new direction. For example, if the price breaks above a previous higher high (HH) or drops below a lower low (LL), that’s a BOS. This usually means the market is gaining momentum, and there's a higher chance that the trend will continue. BOS can appear in both uptrends and downtrends, and recognizing it can give traders a clearer view of what might come next in the market.
Bullish Break of Structure (Bullish BOS)
A bullish BOS happens when the price breaks above a previous high (Higher High – HH). If the market pushes past that previous high and forms a new one, it’s a strong sign that the uptrend is still going. This kind of move usually means buyers are still in control, and the market is likely to keep moving upward.
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| Break of Structure during a Bullish Trend. |
Bearish Break of Structure (Bearish BOS)
A bearish BOS happens when the price breaks below a previous low (Lower Low – LL). This shows that sellers are in control and the downtrend is still in play. If the price keeps moving lower after breaking that previous low, it confirms that the bearish trend is continuing.
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| Bearish Trend Break of Structure. |
In short, if the price keeps making higher highs and higher lows, and the most recent Higher High is broken strongly to the upside, that’s a bullish BOS — meaning the uptrend is continuing. On the other hand, if the price keeps forming lower lows and lower highs, and the latest Lower Low is broken to the downside, that’s a bearish BOS — showing that the downtrend is still in place.
The Importance and Use of BOS
Break of Structure (BOS) is a vital tool for traders, helping them to stay in tune with the market and make better decisions at the right time. It’s also an important indicator for understanding the market’s trend direction. These breakouts often reveal areas where the market collects liquidity — like zones where stop-loss orders are triggered — and they show movements supported by institutional players. BOS is mainly used to confirm the strength of the current trend. For example, in an uptrend, if the price breaks a previous high, it suggests that buyers are still in control and the trend is likely to continue. This can be a reliable signal for traders to enter positions in the direction of the trend. Taking positions in the direction of the BOS is a good tactic to capitalize on the strength of the trend.
BOS helps traders understand the overall structure of the market. It allows them to figure out the current trend direction — whether the market is going up or down. It gives a clear framework to spot structural changes in price action. When price breaks certain levels, it often means the market is searching for liquidity — and institutional players might be using those breakouts to build their positions. In a bullish structure, the market keeps making higher highs and higher lows. In a bearish structure, it consistently forms lower highs and lower lows.
Entry and exit points can also be determined when the structure breakout occurs. The BOS directly influences SMC traders to identify entry points. For instance, a bullish BOS followed by a pullback and subsequent continuation in the direction of the trend enables traders to identify a low-risk entry point. Additionally, a failed BOS (for instance, if the price fails to retest the level at which it broke) can prompt traders to exit.
How to Identify Real vs. Fake Break of Structure (BOS) in Forex Trading
Sometimes, the price looks like it’s breaking the structure, but then it quickly reverses. This is called a fakeout. Fake BOS moves happen pretty often in the market. To spot a real BOS correctly, traders need to really understand chart analysis and the market structure. One way to tell a true BOS from a fakeout is to wait for the price to close past the breakout level (like a candle close) and look for extra confirmation signals before making a decision.
Volume Confirmation: If there’s a rise in volume at the moment of the breakout, it makes the breakout more valid. Usually, a valid BOS comes with increasing volume and strong candle patterns (like big green candles or gap moves). To confirm if a BOS is real, traders should look at volume analysis. A strong BOS is often backed by high volume, which can show that smart money (SMC) is active in the market.
Close Confirmation: It’s not enough for just the wick to
break the level — the candle’s close should also be above or below the broken
level.
Retest: When the price comes back to test the broken level and it holds as support or resistance, it makes the BOS stronger. If the price retests that level, opening a trade from there can offer low-risk opportunities.
Timeframe Selection: BOS can mean different things on different timeframes. A BOS seen on higher timeframes (like 4-hour or daily charts) is usually a stronger signal. On lower timeframes, it can offer more short-term trade opportunities.
Remember, BOS shouldn’t be used on its own. You need to consider the overall market trend, liquidity zones, and other SMC concepts like Order Blocks. Sometimes BOS can be misleading, especially when the market is overbought or oversold. That’s why it’s important to confirm BOS signals with indicators like RSI. To use BOS effectively, traders must analyze market structure, price action, and liquidity areas carefully. Avoiding fake breakouts and combining BOS with other SMC tools will improve the chances of success with this strategy.