Lesson 20: Advanced Market Structure (BOS & CHOCH)

Part of Module 6: Advanced Strategy & Smart Money Concepts

Introduction: Reading the Deeper Story

In Module 3, we learned to identify a trend by looking for Higher Highs and Higher Lows. Now, we'll go deeper by identifying two key events: the Break of Structure (BOS) and the Change of Character (CHOCH).

Break of Structure (BOS): The Trend's Confirmation

A Break of Structure is a strong signal that the current trend is healthy and likely to continue.

  • In an Uptrend, a BOS occurs when the price breaks above the previous Higher High.
  • In a Downtrend, a BOS occurs when the price breaks below the previous Lower Low.

Analogy: Conquering New Territory. Think of an army marching up a hill. Each time they conquer a new high point, that's a Break of Structure. It confirms their strength and tells you they intend to keep advancing.

Change of Character (CHOCH): The First Warning Sign

A Change of Character is the first clue that a trend might be losing momentum and getting ready to reverse. It's the first time the market fails to follow its established pattern.

  • In an Uptrend, a CHOCH occurs when price breaks below the most recent Higher Low.
  • In a Downtrend, a CHOCH occurs when price breaks above the most recent Lower High.

Analogy: The Army Gets Pushed Back. If our army is marching up the hill (uptrend), a CHOCH is like them getting pushed back past their last camp (the previous Higher Low). They haven't been defeated yet, but for the first time, their forward progress has been seriously challenged.

How to Use BOS and CHOCH Together

This gives you a simple but powerful framework for trading:

  1. Identify the main trend.
  2. As long as the price continues to create a BOS, look for trades in the direction of the trend.
  3. The moment you see a CHOCH, you should stop looking for trades in that direction and start watching for a potential reversal.
Previous Next Lesson