Break of Structure (BoS) and Change of Character (CHoCH) Trading Strategy
Master the core market structure concepts that signal trend continuation and reversal.
Smart Money Concepts Trading Course [Full Video Guide]
Key Takeaways
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Smart Money Concepts track how institutional traders (banks, hedge funds) move markets so you can trade in their direction.
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Break of Structure (BoS) confirms trend continuation; Change of Character (CHoCH) warns of potential reversal.
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Strong levels come from moves that break structure; weak levels come from moves that fail to break structure.
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Draw supply and demand zones from the candle before a strong momentum candle (at least 2x the size of previous candles).
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Fair Value Gaps identify entry points mid-move when price doesn't retrace all the way to your supply or demand zone.
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Liquidity grabs wick beyond key levels then reverse sharply—look for candles that close back inside the structure.
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Always wait for confirmation (candlestick pattern or momentum candle) before entering at any zone or gap.
SMC Trading Checklist
Before You Trade
During Your Analysis
Before Entering
Common SMC Trading Mistakes
Treating Every CHoCH as a Reversal
Why it happens: Traders see price break below a low and immediately assume the trend has reversed, entering counter-trend trades too early.
Better approach: A CHoCH is a warning sign, not a confirmed reversal. Wait for the candle to close beyond the level and look for follow-through before acting on it.
Drawing Zones from Weak Levels
Why it happens: Traders draw supply and demand zones at every swing point without checking if that level actually caused a structure break.
Better approach: Only draw zones at strong levels—those where the move that followed broke the previous high (for demand) or low (for supply).
Entering Without Confirmation
Why it happens: Excitement takes over when price reaches a zone, leading to entries before any actual buying or selling pressure is visible.
Better approach: Wait for a candlestick pattern (hammer, engulfing) or a momentum candle at your zone before entering. Patience prevents many losing trades.
Confusing Liquidity Grabs with Real Breakouts
Why it happens: When price breaks a key level, traders enter breakout trades without waiting to see if the move holds or reverses.
Better approach: Watch how the candle closes. A wick beyond the level that closes back inside is often a liquidity grab—not a breakout to chase.
Ignoring the Higher Timeframe Trend
Why it happens: Traders focus only on the timeframe they're trading and miss that they're fighting a much larger trend.
Better approach: Check the higher timeframe first. Internal breaks on lower timeframes often align with the higher timeframe trend—trade with it, not against it.
Smart Money Concepts FAQ
What markets can I use Smart Money Concepts on?
SMC works on any liquid market including forex, stocks, crypto, commodities, and indices. The concepts apply wherever institutional traders are active and price action leaves a footprint on the chart.
How do I tell the difference between a CHoCH and a liquidity grab?
A Change of Character requires the candle to close beyond the key level, confirming the break. A liquidity grab wicks beyond the level but closes back inside the previous structure. Always wait for the candle close before deciding.
Which timeframe should I use for SMC trading?
SMC works on all timeframes because the concepts are fractal. Many traders use higher timeframes (4H, Daily) to identify structure and bias, then drop to lower timeframes (15m, 1H) for precise entries.
Do I need to use all SMC concepts in every trade?
No. You can build a strategy around just one or two concepts that fit your style. Many traders focus primarily on supply and demand zones combined with market structure, adding fair value gaps or liquidity grabs as refinements.
What's the minimum account size needed to trade SMC?
SMC is a methodology, not a capital requirement. You can practice these concepts on any account size or even in demo mode. Focus on mastering the concepts before worrying about position sizing.
How long does it take to learn Smart Money Concepts?
Understanding the theory takes a few hours. Applying it consistently takes weeks to months of practice. Start by identifying market structure on historical charts before trading live, and expect a learning curve with any new approach.
SMC Quick Glossary
Smart Money
Institutional traders with large capital—banks, hedge funds, and professional investors—who can move market prices with their orders.
On chart: You don't see "smart money" directly, but you see the footprint they leave through structure breaks and momentum moves.
Break of Structure (BoS)
When price breaks a previous high in an uptrend or a previous low in a downtrend, confirming the trend continues.
On chart: A candle closing above the most recent swing high (bullish BoS) or below the most recent swing low (bearish BoS).
Change of Character (CHoCH)
When price breaks structure in the opposite direction of the current trend, signaling a potential reversal.
On chart: In an uptrend, price breaks below the most recent higher low. In a downtrend, price breaks above the most recent lower high.
Strong Level
A swing high or low created by a move that went on to break the previous structure point.
On chart: The origin of a move that resulted in a BoS or CHoCH. These are high-probability zones for entries.
Weak Level
A swing high or low created by a move that failed to break the previous structure point.
On chart: Swing points that were rejected before breaking structure. Price is more likely to eventually take these out.
Supply Zone
An area where selling pressure previously overwhelmed buyers, causing a sharp drop. Expect selling if price returns.
On chart: Draw from the high to low of the candle before a strong bearish momentum candle.
Demand Zone
An area where buying pressure previously overwhelmed sellers, causing a sharp rally. Expect buying if price returns.
On chart: Draw from the high to low of the candle before a strong bullish momentum candle.
Fair Value Gap (FVG)
A three-candle pattern where the middle candle's body creates a gap between the wicks of the first and third candles.
On chart: The space between the high of candle 1 and the low of candle 3 (bullish) or low of candle 1 and high of candle 3 (bearish).
Liquidity Grab
When price briefly breaks a key level to trigger stop losses, then reverses sharply in the opposite direction.
On chart: A wick (shadow) that extends beyond a high or low, but the candle closes back inside the structure.
This content is for educational purposes only and should not be considered financial advice. Trading involves substantial risk of loss and is not suitable for all investors. Always conduct your own research and consider your financial situation before making any trading decisions.
Dive Deeper Into SMC Concepts
Understanding Strong Highs, Weak Highs, Strong Lows, and Weak Lows
Learn how to classify price levels to find the highest probability supply and demand zones.
Liquidity Grab in Trading: Meaning, Strategy and Pattern
Discover how smart money hunts stop losses and how you can profit from these reversals.
Understanding Fair Value Gaps (FVG) in Trading: An In-Depth Guide
Explore how Fair Value Gaps provide precise entry opportunities in trending markets.
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