Smart Money Concepts BOS and CHoCH (2/6)

Notes:

These indicators and concepts are specifically designed for TradingView.com

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Go into INDICATORS and type in Smart Money Concepts

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How they form

BOS (break of structure) and CHoCH (change of character) are the comparison to how support and resistance applies to standard price action. However, what smart money offers is the ability to bypass many of the fakeouts that come with standard support and resistance and instead have it only plot a signal when price truly breaks through a key value. A BOS forms when a security's price breaks through a significant level of support or resistance. This can happen in various ways, such as a price breakout from a chart pattern, a move below a moving average or trendline, or a breach of a key price level. A CHoCH occurs when a security's price action changes from one pattern or behavior to another. This can happen in various ways, such as a change in the trend, a shift in volatility, or a change in trading volume. For example, a stock that has been in a downtrend for a long time may suddenly start to show signs of a reversal, such as a higher low or a bullish chart pattern. This change in behavior can indicate a potential trading opportunity for traders who are looking to buy or sell the stock.

How to Identify Order Blocks

Identifying CHoCH and BOS is one of the simpler tools. On your chart after applying the indicator it will plot a lot of Breakthroughs of Structure and Changes of Character. A green BOS indicates a bullish break of structure and a red BOS for a bearish break of structure; this also applies to green and red CHoCH. However, we only want to take trades where BOS/CHoCH are major. The major events are shown in the indicator as a BOS/CHoCH marked by a straight line instead of a dashed line. When we see this means it means that the BOS and CHoCH is more accurate.

While no straight lines BOS or CHoCH appear you I.D. the BOS and CHoCH by looking at the green or red plotted signals

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How to trade

We trade this with support and resistance methods in mind. This means that you buy after the green CHoCH/BOS label appears and when the candle that retested the broken resistance/new support closes and the volume doesn’t increase before that (unless the market is ranging after it broke). Effectively meaning the candle that comes after the straight lined CHoCH or BOS that closes is when you would enter. Same thing with shorts. You short after the red BOS/CHoCH label appears and when the candle that retested the broken support/new resistance and the volume doesn’t increase from the candle before that. Here is a great example below.

Both examples shown in pink (the first candle to close after the straight lined CHoCH is an entry)

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Other concluding remarks

1. Confirmation: It's important to wait for confirmation before entering a trade based on BOS or ChOCH. This means waiting for a follow-through move in the direction of the breakout or change in character. This helps to reduce the risk of a false breakout or a fakeout, which can lead to losses.
2. Stop-loss: As with any trading strategy, it's important to use a stop-loss order to manage risk. This helps to limit potential losses in case the trade doesn't go as expected. The stop-loss order should be placed below the support level in the case of a BOS trade and above the resistance level in the case of a ChOCH trade.
3. Volume: Volume is an important factor to consider when trading BOS and ChOCH. A breakout or change in character accompanied by high trading volume is considered more significant than one with low volume. High volume can provide confirmation of the move and increase the likelihood of a successful trade.

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