Break of Structure (BOS) in ICT: [Catch BOS Like Smart Money]

In Inner Circle Trader (ICT) methodology, the Break of Structure (BOS) is a crucial concept that signals a potential shift in market direction.

A BOS occurs when price violates the previous significant high or low, indicating that the prevailing trend may be ending, and a new trend is starting.

This concept helps traders spot reversals or continuations and take positions accordingly.

In this guide, we’ll dive deep into identifying BOS, explain its significance, and provide detailed examples.

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1. What is a Break of Structure (BOS)?

A Break of Structure (BOS) in ICT occurs when price breaks above a key swing high or drops below a key swing low, signaling a potential change in the underlying market direction.

The structure refers to the price action framework that shows a sequence of highs and lows during a trend.

• In an uptrend, the structure consists of higher highs (HH) and higher lows (HL).
• In a downtrend, the structure is made of lower highs (LH) and lower lows (LL).

When price breaks the previous significant high or low, it signals a BOS, indicating a potential trend reversal or confirmation.

2. Key Points to Understand BOS in ICT:

1. Uptrend BOS: Occurs when price breaks below a higher low (HL) in an uptrend.
2. Downtrend BOS: Occurs when price breaks above a lower high (LH) in a downtrend.
3. Market Structure Shift (MSS): BOS is sometimes considered an early Market Structure Shift (MSS), which confirms that the existing trend is potentially ending.

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3. How to Identify BOS in an Uptrend in ICT

In an uptrend, a BOS happens when the price fails to make a new higher high (HH) and instead breaks below the previous higher low (HL).

This signals that the bullish trend might be weakening and a bearish reversal could occur.

1. Example:

• The price of EUR/USD is in an uptrend, forming consecutive higher highs and higher lows.
• Let’s say the price forms a new higher high (HH) at 1.2000 and a higher low (HL) at 1.1900.
• If the price retraces and breaks below 1.1900, the previous higher low, this is a Break of Structure (BOS), signaling a potential trend reversal to the downside.

In this case, an ICT trader may anticipate a bearish reversal and look for opportunities to sell, especially after a retest of the broken structure level (1.1900).

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4. How to Identify BOS in a Downtrend in ICT

In a downtrend, a BOS occurs when the price breaks above the previous lower high (LH).

This indicates that the bearish trend is losing strength, and a bullish reversal could be on the horizon.

1. Example:

• The price of Bitcoin is in a downtrend, creating consecutive lower highs (LH) and lower lows (LL).
• Let’s assume the price forms a new lower high (LH) at $30,000 and a lower low (LL) at $28,000.
• If the price rallies and breaks above $30,000, this would be a BOS, signaling that the downtrend could be over, and a new uptrend might begin.

In this scenario, an ICT trader may shift focus from looking for short positions to looking for long opportunities, especially if price retests the broken structure level at $30,000 and holds above it.

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5. BOS vs. Market Structure Shift (MSS) in ICT

Though often used interchangeably, BOS and MSS can be slightly different concepts in ICT.

A BOS is simply a break of a key swing high or low, signaling a potential change in trend. However, an MSS goes further by requiring additional confirmation, such as a retracement and continuation of the new trend.

• BOS: Indicates a possible reversal or continuation.
• MSS: Confirms a trend shift with additional validation.

1. Example of MSS:

If price breaks a key lower high (LH) in a downtrend (BOS), the Market Structure Shift (MSS) requires price to retrace back to the broken level, hold above it, and then continue higher.

This provides stronger confirmation of a trend reversal.

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6. Different Types of BOS in ICT

1. Major Break of Structure (Major BOS): A break of the major swing high or low, signaling a substantial shift in the trend. This is typically used to identify long-term trends.
2. Minor Break of Structure (Minor BOS): A break of a smaller swing high or low within a larger trend. This type of BOS may indicate a short-term retracement within the broader trend.

1. Example:

In the NASDAQ index, the price is making higher highs and higher lows on the daily chart, indicating an uptrend.

However, on the 1-hour chart, price breaks below a smaller higher low (HL), forming a Minor BOS.

This could indicate a short-term pullback within the larger uptrend.

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7. Trading BOS with ICT Concepts

To trade a BOS effectively using ICT methods, traders focus on combining the BOS with other key concepts such as liquidity grabs, order blocks, and time and price theory.

Here’s how it works:

1. Liquidity Grab Before BOS: ICT emphasizes that institutions may grab liquidity before breaking structure. For example, in an uptrend, price might spike above a previous higher high to grab liquidity from retail traders’ stop losses before reversing and breaking below the higher low, confirming the BOS.
2. Order Blocks: After a BOS, price often retraces to a nearby order block before continuing in the direction of the new trend. Order blocks are areas where institutions placed large buy or sell orders, and they act as support or resistance.
3. Time and Price Theory: ICT traders use killzones (specific times of the day when institutions are most active) to anticipate when a BOS is more likely to occur. The London Open and New York Open are critical times for observing breaks of structure.

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8. Examples of BOS in Action in ICT

1. Gold (XAU/USD) – Bearish BOS Example

• The price of Gold is in a clear uptrend, forming higher highs and higher lows.
• Price hits a new higher high at $1,950 and retraces to form a higher low at $1,930.
• Suddenly, price drops and breaks below $1,930, creating a BOS.
• This BOS signals that the uptrend may be ending, and a downtrend could be starting.

2. S&P 500 – Bullish BOS Example

• The S&P 500 is in a downtrend, forming lower highs and lower lows.
• Price reaches a lower high at 4,200 and a lower low at 4,000.
• Price rallies and breaks above 4,200, creating a BOS.
• This break of structure suggests that the downtrend may be reversing into a new uptrend.

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9. Conclusion

The Break of Structure (BOS) is a fundamental concept in ICT trading that signals a potential shift in market direction.

By identifying BOS points and combining them with other ICT concepts like liquidity grabs, order blocks, and time and price theory, traders can position themselves for high-probability setups.

Whether in an uptrend or downtrend, a BOS provides critical insight into market dynamics, helping traders understand when trends are ending or continuing.