There are no shortage of technical terms and acronyms in trading. And if you’re new to day trading, you might be overwhelmed by the terminology.   

A term you may read about a lot is “BOS”. But what is BOS, and how does it affect your trading strategy? Below, we explain how BOS works in trading and how it interacts with another common concept – CHOCH. 

What Is Market Structure?

Before we can define BOS and CHOCH in trading terms, it’s important to understand another concept – market structure.  

Market structure, in trading terms, means how a market is moving.  

As prices move up and down, patterns emerge revealing the current relationship between buyers and sellers. It’s within these patterns that we can identify market sentiment – and decide whether it’s time to buy or sell. In other words, market structure influences every key trading decision you make!     

Various factors affect the market structure. The factors at play depend on which market you’re trading in e.g. Forex.  

However, there’s one commonality: the market never stands still. Prices ebb and flow, and the relationship between buyers and sellers is in constant flux.  

It’s within these fluctuations that BOS and CHOCH become relevant.   

What Is BOS in Trading?

BOS stands for “Break of Structure”.  

Break of Structure means that there’s a market shift or change in trend occurring. It’s an indicated that we’re about to see an asset price change, and a shift in the dynamic between buyers and sellers. 

BOS and Smart Money

BOS is part of “Smart Money Concept” (SMC) trading. This trading methodology is based on the idea that large institutional investors (smart money investors) control the market.  

Key points from SMC trading are:  

• Smart money investors, including banks, directly influence the market.  
• By looking at how smart money investors behave, we can predict market shifts. These shifts include a Break of Structure.  
• Smart money traders aim to replicate how these investors move to make profits. This means understanding what’s driving the investors to behave the way they do.  

How Does BOS Work?

BOS means there has been a change in an asset’s price level. This could mean one of two things: 

• There’s a trend change on the horizon; or  
• We’re about to see a whole new trend emerge.  

For example, say an asset is experiencing higher highs, or lower lows. If there’s a break in trend, then there’s a potential reversal on the way.  

Trends are just that – patterns. They don’t stay the same forever. So, by knowing how to spot a change in price dynamics, traders can determine when it could be time to change positions.  

Why Is BOS Important? 

BOS matters for two main reasons.  

• Knowing how to spot BOS helps traders make informed decisions, based on technical analysis, rather than emotional decisions. This reduces the risk of changing positions prematurely.  
• BOS gives traders a deeper understanding of the market. It allows them to manage risk by accurately following – and responding to – changes in asset trends.  

Put simply, BOS allows traders to spot new opportunities for investment. And it’s a signal that day traders can use, too. It works well no matter what timeframe you trade over.

How to Spot BOS in Trading

First, know if your market is bullish, bearish, or neutral. Then you can identify a signal which may indicate a change in trend.  

• Bullish BOS: Look for a change in lower highs and lower lows to a higher high. 
• Bearish BOS: If it’s a bearish market, look for a sudden lower low amidst higher highs and higher lows.   
• Horizontal: Watch out for a breakout (either above or below the established boundary).  

If you’re going to use BOS in trading, then you need to also understand its close relative – CHOCH.   

What Is CHOCH in Trading? 

CHOCH stands for “Change of Character”. In other words, the market is shifting from one “type” of market – such as bullish or bearish – to the other. It’s more than just a change in trend, or BOS. It’s an entire character shift.  

So, to be clear, while BOS indicates a change in trend, CHOCH indicates a change in the overall character of the market. 

How Does CHOCH Work? 

CHOCH often means we’re seeing a change from a “trending” market to a “ranging” market.  

Trending markets are moving in a steady direction (high or low). In ranging markets, prices move or “bounce” between upper and lower boundaries. They’re not trending so much in one direction as simply moving around. 

Why Is CHOCH Important?

It’s simple: trending and ranging markets have different characteristics. Knowing how to spot a change in market mood, or sentiment, helps traders determine when it’s time to sell or buy.  

Traders typically use CHOCH alongside BOS. This gives a more accurate picture of the overall market behavior rather just studying one indicator in isolation.  

How to Identify CHOCH

First, look for the initial BOS. This is the first signal that there’s a potential change underway.  

Then, look for a pattern. For example, say there’s a break in a bullish trend. We’re looking for further breaks which confirm a change is underway. Prices continually form new “lower lows” as the market reverses.  

Finally, we’ll reach a point where we can confirm a true Change of Character. This is usually when the prices go beyond the most recent lower high.  

In other words, a single BOS is not enough to say CHOCH is underway. We must confirm the market shift by looking for patterns emerging.  

Now you know how to identify BOS and CHOCH in trading, you can use them in your strategies going forward.  

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