A Break of Structure occurs when price breaks a previous swing high (in an uptrend, confirming continuation) or swing low (in a downtrend, confirming continuation). BOS confirms the prevailing trend and is used to trail bias. Internal BOS occurs within a trend leg; external or structural BOS breaks the last significant swing.
Bullish BOS: price breaks above a previous swing high. Bearish BOS: price breaks below a previous swing low. Internal vs. external structure breaks. Must close beyond the level (wick touches don't count in strict SMC). BOS establishes bias for pullback entries.
After BOS confirms trend direction, trade pullbacks into FVGs or OBs, Wait for LTF confirmation after BOS on a higher timeframe, BOS + liquidity sweep of the interim swing = high-probability setup
Trade in BOS direction until a Change of Character (ChoCH) occurs, Stop beyond the FVG/OB used for entry, Target the next liquidity pool in the BOS direction
Multi-timeframe: identify BOS on 4H/Daily, entry on 15M/1H
BOS is a trend-continuation signal, not a reversal signal. Many new SMC traders confuse BOS with ChoCH. BOS means 'more of the same'. ChoCH means 'trend is changing'.
A Change of Character is the first break of structure AGAINST the prevailing trend. In an uptrend, ChoCH is the first lower low. In a downtrend, ChoCH is the first higher high. ChoCH signals a potential trend reversal and is one of the most important SMC concepts for identifying turning points.
Liquidity sweeps (also called stop hunts or liquidity grabs) occur when price moves through an obvious support or resistance level to trigger stop losses and pending orders, then reverses. Institutions use these sweeps to fill large orders at better prices. Identifying potential liquidity pools (clusters of stops) is central to SMC trading.
The Optimal Trade Entry is an ICT concept that identifies the highest-probability retracement zone for entering trades in the direction of the prevailing trend or order flow. The OTE zone sits between the sixty-two and seventy-nine percent Fibonacci retracement of the most recent impulsive leg, which aligns with institutional re-entry pricing. Entries at the OTE provide favourable risk-to-reward ratios because the stop is placed just beyond the swing point.
Inducement is a Smart Money Concept describing the deliberate engineering of liquidity pools by institutional traders to attract retail orders before reversing price. Inducement patterns occur when price creates minor highs or lows that entice retail traders to enter positions or place stops, providing the liquidity that smart money needs to fill large orders in the opposite direction.