Break of Structure (BoS): Definition, Types and How to Trade

In chart patterns, whenever a new higher high is formed by breaking a previous high or a new lower low is created by breaking a previous low, it is referred to as a “break of structure.”

The continuation of a trend is shown whenever the market makes a new high and breaks the previous resistance level; this is called a “break of structure.” The same concept applies in a downtrend.

SMC (Smart Money Concept) is a new approach, and to understand it fully, it’s essential to grasp each of its elements, one of which is the break of structure—an important part of SMC. In this article, I’ll teach you what a break of structure is, how to identify it, which trading strategies can be applied to it, and whether it is an overall profitable trading strategy.

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What is the Break of Structure (BoS) in Trading?

Whenever the market breaks its previous swing high and forms a new swing high, this is known as a “break of structure.” Similarly, during a downtrend, if a new lower low is created by breaking the previous low, this is also called a “break of structure.”

How to Identify a Break of Structure (BoS)?

Identifying a break of structure is quite simple. First, mark a swing high, and whenever the price breaks above this swing high, it creates a break of structure. Similarly, in a downtrend, mark a low, and when the price breaks below this low to form a new lower low, a break of structure is created.

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Strong and Weak Swing Points

In trading, Strong and Weak Swing Points refer to key price levels that help traders identify potential turning points, continuation signals, or trend changes. Let’s break them down:

1. Strong Swing Points

• Strong swing points are significant peaks or troughs in price movement where there was a clear reversal.
• These points usually have high trading volume and indicate strong support (at a low) or resistance (at a high).
• They’re often used as reliable levels for entries or stop-loss placements because price is less likely to break past these levels without considerable momentum.
• Example: If a stock hits a low and sharply reverses with high volume, forming a strong swing low, traders may see this as a robust support level.

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2. Weak Swing Points

• Weak swing points are less impactful, often seen as minor retracements or short-lived reversals in the market.
• They don’t typically have the same level of volume or momentum as strong swing points, making them less reliable as support or resistance.
• Weak swing points may occur frequently in sideways or choppy markets and can be easily breached, meaning price may revisit or break through these levels.
• Example: If a stock pulls back briefly during an uptrend without strong volume, forming a minor low, it is likely a weak swing low that price could easily fall below.

How to Use Strong and Weak Swing Points in Trading

• Trend Identification: Strong swing points help identify primary trend direction. In an uptrend, strong swing lows indicate support; in a downtrend, strong swing highs mark resistance.
• Entry and Exit Strategy: Traders often set entries near strong swing points in the trend’s direction and use weak swing points as indicators for taking partial profits or gauging momentum strength.
• Stop-Loss Placement: Placing stop-loss orders below a strong swing low (for a buy position) or above a strong swing high (for a sell position) can reduce the risk of being stopped out in minor retracements.

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Types of Break of Structure (BoS)

There are two types of break of structure: bullish and bearish. In a bullish structure, the market keeps forming new higher highs, while in a bearish structure, the price continues making lower lows.

Bullish BOS

A bullish break of structure occurs when the price on a chart breaks a recent high and forms a new higher high; this is known as a bullish break of structure.

Bearish BOS

A bearish break of structure forms when the price on a chart breaks a recent low and creates a new lower low; this is known as a bearish break of structure.

Also Read: Fair Value gap (FVG): Trading Strategy, Best Timeframe, Indicator and Quick Tips

Break of Structure Trading Strategy

Let’s learn how to trade using the break of structure (BoS) because this is a topic that isn’t often covered in depth.
If you have understood the break of structure (BoS) well, then let’s focus on how to trade it effectively.

Here’s a step-by-step approach to trading using BoS:

1. Identify the Break of Structure:
   • Bullish BoS: Look for when the price breaks a recent high and forms a new higher high.
   • Bearish BoS: Look for when the price breaks a recent low and forms a new lower low.
2. Confirm the Trend:
   • Ensure that the market is in a clear trend (uptrend for bullish BoS or downtrend for bearish BoS) before entering trades.
3. Wait for Pullbacks (Retests):
   • After identifying a BoS, wait for a pullback or retest of the broken level (swing high or low). This is where you can enter with a better risk-to-reward ratio.
   • Bullish: Enter after the price pulls back to the previous resistance (now support).
   • Bearish: Enter after the price pulls back to the previous support (now resistance).
4. Set Entry Points:
   • For Bullish: Once the price retests the broken resistance, look for bullish signals (such as candlestick patterns or indicators) for confirmation before entering.
   • For Bearish: Once the price retests the broken support, look for bearish signals for confirmation.
5. Risk Management:
   • Set stop-loss orders below the swing low for bullish trades or above the swing high for bearish trades.
   • Use appropriate position sizing based on your risk tolerance.
6. Target and Exit:
   • Bullish: Target the next resistance level or the previous swing high for your exit.
   • Bearish: Target the next support level or the previous swing low.

By following these steps, you can effectively trade using the break of structure concept. Always remember to practice risk management and stay disciplined with your trades.

Conclusion on Break of Structure

The Break of Structure (BoS) is a powerful tool in technical analysis that helps traders identify key turning points in the market. It also helps in determining how strong the trend is. It signals a shift in market dynamics, either in an uptrend or downtrend, and indicates potential trading opportunities.

In this article, you have learned how to trade using the Break of Structure (BoS) and what BoS indicates. So, that’s all for today. How did you like this post? If there’s anything that needs improvement, feel free to contact us!