Break of Structure (BOS) – Understanding Market Structure
Do you want to master Break of Structure in trading to trade like a pro ?
Well in this article we will be explaining core element of market structure called Break of structure from its identification to its use with examples.
But before going in-depth of break of structure you should also know about Inducement
Now lets start with defining the Break of Structure (BOS).
What is Break of Structure in Trading?
Break of structure is basically a continuation of market trend by breaking previous structure. Break of structure helps us to catch continuation trades in the market and it also helps to identify the market trend.
On the basis of market trend break of structure can be divided into two types which are explained below.
(I) Bullish Break of Structure
When market is in bullish trend it makes higher highs which means it always breaks its previous high and makes a new high and this phenomenon is called bullish break of structure.
But break of structure is incomplete without inducement so a break of structure in bullish trend happens when market grabs the inducement and breaks the previous high making a higher high.
But if price breaks previous high without taking inducement it is called a minor break of structure and in this way a new higher high or higher low is not formed and structure remains same.
(II) Bearish Break of Structure
When market is in bearish trend it makes lower lows which means it always breaks its previous low and makes a new low and this phenomenon is called bearish break of structure.
But break of structure is incomplete without inducement so a break of structure in bearish trend happens when market grabs the inducement and breaks the previous low making a lower low.
But if price breaks previous low without taking inducement it is called a minor break of structure and in this way a new lower high or lower low is not formed and structure remains same.
What is Best time frame to identify Break of Structure?
Market structure appears across all time frames and different time frames often display different market structures.
So you can identify break of structure in any time frame by marking the previous structure.
The best approach is to have a clear understanding of the market as a whole. This includes low time frame, medium time frame, and high time frame structure. Think about each time frame and align the market structure as top down analysis.
How to Trade Break of Structure?
In bullish market when market breaks the structure you should mark inducement and wait for price to retrace back and take inducement.
When price grabs inducement you can look for buy trades with confirmations like market structure shift or trend reversal in lower time time frames.
In bearish market when market breaks the structure you should mark inducement and wait for price to retrace back and take inducement.
When price grabs inducement you can look for sell trade with confirmations like market structure shift or trend reversal in lower time time frames.
Final Thoughts
While using break of structure in trading, we should keep in mind that no strategy is foolproof in trading, so you should not risk all your capital on this strategy.
Plus to mitigate your risks, you should always trade with stop loss in place to keep your equity safe.
