As an active trader seeking to capitalize on directional market movements, understanding the concept of breaks in structure (BOS) is essential. Monitoring these potential structural turning points can allow you to enter extended moves very early on for maximized reward potential.
But what exactly constitutes a valid break of structure? When does a transient spike morph into a actual trend shifting breakthrough? This guide will explore everything you need to know about properly identifying and trading BOS setups in markets.
What Defines Market Structure?
Before detecting legitimate breaks in structure, we first need to establish what constitutes market “structure” itself. This refers to areas on the chart where the market has recently found sizable reactions and directional orderflow shifts.
Some key levels that form market structure:
Swing Points
- Recent swing highs and lows
- Key intraday/daily reversals
Session Opens/Closes
- Levels marking open or close of meaningful candle sessions
Order Blocks
- Zones showing significant buying/selling pressure
Round Number Levels
- Whole or half major psychological levels
Trendlines
- Diagonal channels that price has respected until now
Here is a chart example highlighting some clear visible structure:
As we can see here, horizontal support formed from the overnight session close, the market topped out at 1.3600 recently establishing a swing high, and a minor downtrend channel emerges connecting reactions.
These areas represent visible “structure” that the market has acknowledged and reacted off many times until now. But eventually structure breaks…
What is A Break of Structure (BOS)?
A break of structure (BOS) occurs when price action closes outside one of these previously defined structural levels. Typically seen as new swing highs or lows, these breaks often kickstart impulsive continuations.
A valid BOS needs to fulfill three key criteria:
- Break past defined structure: Swing point, trendline etc. getting taken out
- Closing break: Candle closes decisively outside level on first test
- Impulsive move: Dynamic, volatility expansion on break
As a rule of thumb, the more recent tests of a level just prior to the break, the more significant the eventual break tends to be. Frequent reactions highlight the importance of the visible zone before the breakdown.
Here’s an example of a clean impulsive upside BOS setup:
We can observe:
✅ Price breaking above swing high structure
✅ Impulsive bullish candle closing outside level
✅ Multiple recent reactions off resistance zone
This convinces buyers to step in since that visible area of prior selling pressure has been absorbed. Shorts are forced to cover as stops are run driving additional upside momentum. Expect follow through.
Why Do Breaks of Structure Matter?
Monitoring intraday swings and key visible chart levels pays dividends because extended moves often originate from breaks in established structures.
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Get in early on trend extensions – entering trend continuations at earliest stage allows maximized capture.
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Snipes liquidity – impulsive breaks indicate trapped participants getting stopped out fueling further movement.
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Higher probability – clean breaks that retest structure have better odds than naked breakouts.
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Defines trade parameters – new swing high/low offers positional reference for stops, targets and risk management.
For active traders, properly qualifying BOS setups delivers favorable risk-reward timing opportunities with defined trade management.
Next we’ll explore what constitutes “high probability” BOS formations worth trading…
Prudent Entry Checklist For Trading BOS
While all breaks of structure signify a shift in market order flow, not every seemingly clean “breakout” pattern presents a worthwhile trading edge.
Here is a checklist to reference when assessing the validity of a BOS setup:
Close Beyond Structure
- Candle Body Closes Outside: Break candle needs to fully engulf structure with its body close. Wicks poking through momentarily don’t qualify.
Significance of Structural Level
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Prior Reactions: Level shows previous reaction(s) from market before giving way. More touches elevate importance.
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Round Number Alignment: Break occurring very near/through psychological level adds significance.
Momentum Increase on Break
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Volume Spike: Increase in volume across break candle(s) confirms participation.
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Volatility Expansion: Violent price action shows conviction behind break. Wider candles and spreads.
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Moving Average Confluence: Tight BOS occurring at key MAs (50, 200 etc) raises probability.
Here’s a real example checking off this precise criteria:
We can confirm all elements of a properly qualified, high probability BOS setup:
✅ Clean break through swing point structure
✅ Multiple recent reactions showing significance
✅ Heavy breakout candle closing outside level
✅ Sharp volatility expansion on breakout
When you reference this checklist in your own analysis, it becomes much easier to measure the validity of potential breaks and forecast follow through potential.
Now let’s examine approaches for entering from high probability BOS zones…
Trading Tactics for Entering Breaks of Structure
When a quality BOS setup emerges meeting our checklist criteria, two types of entry methods emerge:
1. Enter on Close of Breakout Candle
Most aggressive entries look to enter on the close of the candle creating new structure itself, hoping to capture maximum run.
2. Wait For “Retest” to Enter
More conservative traders prefer waiting to see a retest of the broken structure level, entering on rejection as it proves authenticity of break.
Let’s compare the pros and cons of each tactic:
| Enter on Break Close | Wait For "Retest" Rejection | |
|---|---|---|
| Risk Level | Aggressive | Conservative |
| Pros | Earlier entry, larger profit potential | Confirmation of valid breakout. Tighter stop placement possible |
| Cons | Lower probability, likely wider stop | Later entry sacrifices portion of initial move |
There’s certainly profitable logic to both methods. But typically, waiting for some form of “confirmation” leads to higher win rate setups.
Managing Trades Triggered by BOS
Upon entering trades triggered by breaks in structure, there are three key techniques to managing BOS setups:
Use Invalidation Strategies
Place initial stops just beyond opposite side of broken structure using break even, trailing or visual chart based stops. If price re-penetrates level, it likely invalidates setup.
Book Partial Profits
Consider scaling out portions of the position at logical areas like 2:1 or 3:1 measured move targets calculated off the height of the structure level itself. This banks some profits without exiting entire trade pre-maturely.
We take the height/range of broken structure swing point, then project extensions higher off break.
Banking profits as key milestones hit ensures winning trades while still retaining position for further follow through.
Ride Trend Using Zone Trail
For captures focused on extended trend-continuation rather than intraday scalps, trailing stops under forming smaller structures keeps you in emerging momentum moves. This “zone trailing” approach aligns stops with market structure.
Proper trade management is the final piece taking high probability BOS setups into complete and profitable trading strategies.
Now that we’ve covered all aspects of technical BOS analysis, let‘s discuss limitations…
Realities and Cautions When Trading Breakout Strategies
While breaks of structure can produce advantageous risk-reward scenarios, some inherent drawbacks exist:
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Low Probabilities – Impulsive breakouts inherently carry lower probability than pullbacks or consolidations. Retests improve odds.
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False Breakout – Not all seemingly clean breaks result in continuation, so confluence filters required.
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Other Factors – Despite clean technical setup, news events or sentiment shifts can overwhelm.
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Higher Timeframe Context – BOS levels appearing significant on smaller timeframes may be insignificant on higher timeframes without additional confluence.
The above drawbacks primarily manifest themselves in lower quality breakout setups lacking confluence or confirmation. But applying prudent trading criteria can circumvent most pitfalls.
Final Tips for Integrating BOS Analysis
If thoroughly backtesting breakout strategies historically results in below average win percentages for your style, don’t automatically abandon them. Here are three tips to vastly improve performance of BOS-based tactics:
1. Wait For Confirmation Candle Closes
Rather than aggressively buying first breakout candle, give setup time to confirm itself on retrace before committing capital. Patience pays.
2. Use As Additional Confluence, Not Standalone
Stack probabilities in your favor by combining BOS signals with existing technical confluences like key moving averages, sentiment shifts or overlay indicators.
3. Adopt Multi-Timeframe Perspective
While a breakout might appear clearly impulsive on a 5 minute chart, it may be insignificant noise within the context of still intact structure on the hourly or daily timeframes.
Apply those three lessons and your win rate on breaks will vastly improve.
Conclusion – Consistency Lies in High Probability Setups
Breaks of market structure provide traders with genesis points to enter extended moves very early in emerging trends. But aggressively buying any and all breakouts without applying additional confluence filtering and confirmation criteria leads to lackluster win percentages.
The traders able to extract consistent success from BOS technical patterns are those focused strictly on the highest probability setups. Ones that retest structure with rejection before igniting. Ones aligning with heightened volatility and volume. Setups carrying corroboration across higher time perspectives.
While no strategy produces 100% winning trades, combining prudent entry tactics with refined trade management for BOS setups stacks probabilities decidedly in your favor.
I hope this guide has provided tremendous value explaining everything you need to know about effectively trading breaks in market structure. Let me know if you have any other questions!