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BOS AND CHOCH IN CRYPTO TRADING: HOW TO TELL TREND CONTINUATION FROM A REVERSAL
BOS and CHOCH in Crypto Trading: How to Tell Trend Continuation from a Reversal
Market structure is one of the foundations of Smart Money analysis.
Before looking for a liquidity grab, order block, or entry point, it is important to understand which direction the market is moving and whether a potential trade aligns with the current structure.
Two key concepts are used for this:
Break of Structure (BOS)
Change of Character (CHOCH)
BOS helps identify the continuation of an existing structure, while CHOCH indicates a potential change in that structure.
Instead of subjectively deciding that "the trend has reversed," a trader gets specific levels whose break can help assess what is happening with price action.
In this article, we'll break down the difference between BOS and CHOCH, how to identify them on crypto charts, and how to use them to determine trend continuation or a potential reversal.
Table of Contents
What Is Market Structure?
Break of Structure (BOS): Confirming Trend Continuation
Change of Character (CHOCH): The First Sign of a Potential Reversal
BOS and CHOCH on Crypto Charts: How to Identify Them in Practice
How BOS Relates to Order Blocks
How to Use BOS and CHOCH on a Funded Account
Key Takeaways
What Is Market Structure?
In Smart Money analysis, market structure is defined by the sequence of local highs and lows.
Their positioning helps determine whether the market is in an uptrend, a downtrend, or moving within a range.
Bullish structure consists of Higher Highs (HH) and Higher Lows (HL). Price breaks previous highs, while each new significant low remains above the previous one.
Bearish structure works the opposite way: price forms Lower Highs (LH) and Lower Lows (LL). Each new significant high and low is below the previous one.
A range occurs when there is no clear sequence of HH/HL or LH/LL. Price moves between relatively stable upper and lower boundaries without establishing a sustained directional trend.
Timeframe also matters when analyzing structure. The same cryptocurrency can be in a bullish structure on the daily chart while simultaneously showing a local decline on the hourly chart.
That is why traders usually determine the structure on a higher timeframe first and then move to a lower timeframe to look for an entry.
If the direction of a trade does not align with the higher-timeframe structure, the trader is effectively trading against the larger market move, so such a setup requires additional confirmation.
Break of Structure (BOS): Confirming Trend Continuation
A Break of Structure (BOS) occurs when price breaks a previous significant high or low and closes beyond it in the direction of the current trend.
In an uptrend, BOS forms when price breaks the previous swing high and closes above it.
This creates a new Higher High (HH), while the bullish structure remains intact.
In a downtrend, the logic is reversed: price breaks the previous swing low and closes below it, forming a new Lower Low (LL).
Why BOS Matters When Looking for Trades
BOS shows that the current structure remains intact and price continues moving in the direction of the trend. A trader can therefore use it as confirmation of a setup and then look for an entry on a pullback.
For example, after a bullish BOS, attention shifts to the last Higher Low (HL) formed before the high was broken. As long as price remains above this low during a correction, the bullish structure remains intact.
This area may also contain order blocks and FVGs.
In this case, the structural level aligns with an additional zone of interest for finding an entry.
How BOS Differs from a Regular Breakout
Not every move beyond a previous high or low qualifies as a Break of Structure.
If price only wicks through the level and quickly moves back, it may be a liquidity grab rather than a BOS.
That is why, when identifying a Break of Structure, it is important to look not only at the break itself but also at the candle close beyond the significant level. The more decisively price closes beyond it and continues moving, the stronger the confirmation that the structure remains intact.
This is especially relevant in crypto markets because of frequent sharp wicks through key levels. A single wick beyond a previous high or low does not necessarily mean that the structure has actually been broken.
Change of Character (CHOCH): The First Sign of a Potential Reversal
A Change of Character (CHOCH) occurs when price breaks the sequence that has been supporting the current trend for the first time.
In a bullish structure, price forms HHs and HLs. CHOCH occurs when the next Higher Low fails to hold and price breaks the previous significant low.
In a bearish structure, the opposite happens: price forms LHs and LLs, while CHOCH occurs when price breaks the previous significant high.
This movement indicates that the established market structure has been disrupted and the current trend may be weakening or reversing.
However, CHOCH alone does not confirm a full trend reversal. It is the first sign of a structural change, after which a trader looks for additional confirmation rather than automatically entering a position in the opposite direction.
How CHOCH Differs from BOS
The main difference is the direction of the break relative to the current trend.
BOS confirms the continuation of the existing structure. In an uptrend, price makes a new high; in a downtrend, it makes a new low.
CHOCH breaks the existing structure. In an uptrend, price breaks a significant low; in a downtrend, it breaks a significant high.
Simply put:
BOS = the trend is still continuing.
CHOCH = the structure has changed, and a reversal may be developing.
BOS and CHOCH therefore serve different purposes. BOS helps confirm trend continuation, while CHOCH warns that the previous structure no longer appears stable and that the market should be reassessed.
How to Confirm a Reversal After CHOCH
CHOCH indicates that the previous structure has been broken, but it does not confirm that a new trend has formed. After CHOCH, it is important to watch how price builds its next structure.
Consider a reversal from an uptrend into a downtrend:
1
Price breaks the last significant Higher Low (HL). CHOCH forms.
2
After the break, price pulls back upward and forms a new local high.
3
If this high remains below the previous high, the first Lower High (LH) forms.
4
Price then moves downward again and makes a new low, forming a Lower Low (LL).
5
This break becomes the first BOS in the new bearish direction, providing additional confirmation of the reversal.
Entering immediately after CHOCH allows a trader to enter closer to the beginning of a potential reversal, but the risk of a false signal is higher. The market may break the local structure and then return to the previous trend.
A more conservative approach is to wait for a new Lower High followed by a BOS. Part of the move will already have happened, but there will be more structural confirmation of the new direction.
On a Funded Account, this approach can be particularly useful for risk management.
Instead of trying to catch the reversal immediately after CHOCH, a trader can wait for the first BOS in the new direction and only then look for an entry.
BOS and CHOCH on Crypto Charts: How to Identify Them in Practice
To correctly identify BOS and CHOCH, traders first need to learn how to recognize significant swing highs and swing lows. Breaking these levels indicates whether the current structure remains intact or is beginning to change.
How to Identify Swing Highs and Swing Lows
Swing High – a local high surrounded by lower highs.
Swing Low – a local low surrounded by higher lows.
The number of candles used to identify a swing can vary. The more candles considered on each side, the fewer structural points appear on the chart, but the more significant they tend to be. A shorter period allows traders to react more quickly to price movements but creates more market noise.
There is no single correct number of candles. What matters more is using the same approach consistently and not changing the criteria for identifying swings based on price action that has already occurred.
How to Analyze Structure Across Different Timeframes
Market structure always depends on the selected timeframe. A BOS on a 15-minute chart may look like a significant structural move but appear as only a small correction on the 4-hour chart.
That is why it is useful to analyze the market from the top down:
1
Daily and 4-hour charts help identify the broader structure and primary market direction.
2
1-hour chart shows the local structure within that broader move.
3
15-minute chart can be used to find a more precise entry point.
For example, a CHOCH on the 15-minute chart against a clearly bullish 4-hour structure does not necessarily mean that the entire trend is reversing. It may simply be a local correction.
The higher the timeframe on which the structure is broken, the more significant that change is for the broader market context.
How to Combine BOS and CHOCH with Liquidity Grabs
Structural signals become more informative when analyzed together with liquidity grabs.
Imagine an uptrend. Price briefly moves below the previous swing low, taking the liquidity located there, and then quickly moves back above it.
Two scenarios are possible.
1. The trend continues
After the liquidity grab, price recovers and breaks the previous swing high. A BOS forms, confirming that the bullish structure remains intact. In this case, the move below the low was a liquidity grab rather than the beginning of a full reversal.
2. The structure begins to change
Price breaks a significant low, fails to restore the previous structure, forms a Lower High, and then continues moving downward. This sequence provides more reason to consider the move a change in direction.
Therefore, a liquidity grab shows what happened around a significant level, while BOS or CHOCH helps determine what that event means for the market structure going forward.
How BOS Relates to Order Blocks
After a BOS, a new structural point appears on the chart, while the area where the impulsive move began becomes important during a subsequent pullback.
In Smart Money analysis, traders can look for an order block in this area – the last opposing candle before the impulse that caused the Break of Structure.
For example, in an uptrend, the setup may look like this:
1
Price breaks the previous swing high and forms a BOS.
2
A correction begins after the impulse.
3
Price returns to the order block formed before the BOS.
4
If the zone holds and price shows confirmation of a reaction, the trader considers a long entry.
The Stop Loss can be placed below the order block or structural low, while the target can be set at the next significant high or according to a predefined risk-to-reward ratio.
Therefore, BOS confirms the direction of the move, while the order block helps identify a potential entry zone on a pullback.
How to Use BOS and CHOCH on a Funded Account
BOS and CHOCH are useful not only for determining market direction. They also provide objective criteria for re-entry, reducing trading activity, and placing a Stop Loss.
BOS as a condition for re-entry after a loss
After getting stopped out, a trader may feel the urge to immediately open another position and recover the loss. A structural approach helps avoid making this decision based on emotions.
Imagine a trader opens a long position and gets stopped out. The market then forms a bearish CHOCH. In this case, the previous setup needs to be reassessed because the structure has started to change.
Instead of immediately re-entering, the trader can wait for the next structural confirmation – for example, a recovery of the bullish structure or a bearish BOS confirming the development of a new downward move.
This way, the re-entry is based on new information from the chart rather than the desire to recover a loss.
CHOCH as a reason to reassess a trading setup
If CHOCH appears on a higher timeframe against the direction of current trades, it is a signal to reassess the market structure.
This does not mean the position should automatically be reversed. However, the conditions on which the original setup was based may have changed.
In this situation, a trader can reduce trading activity and wait for confirmation of the new direction. This can help avoid a series of trades based on a setup that the market no longer supports.
Structural Stop Loss instead of an arbitrary distance
BOS and CHOCH can also help identify a logical level for a Stop Loss.
For example, after a bullish BOS, the last significant Higher Low formed before the high was broken can serve as a reference point. As long as this low holds, the bullish structure remains intact. A break below it puts the original setup into question.
This approach is directly connected to position sizing.
First, the trader determines a structurally justified Stop Loss, then calculates the distance from the entry to the Stop Loss, and only after that determines the appropriate position size based on the predefined risk.
If the structural Stop Loss is wide, the position size should be reduced rather than artificially tightening the Stop Loss distance. This allows the trader to maintain the predefined level of risk while giving price enough room for normal fluctuations.
Key Takeaways
1
Market structure is built on a sequence of highs and lows.
HH and HL form a bullish structure, while LH and LL form a bearish structure.
2
BOS confirms the continuation of the current structure.
In an uptrend, price breaks the previous significant high; in a downtrend, it breaks the previous significant low.
3
CHOCH warns of a potential trend change.
Price breaks a structural point against the current direction. This is not yet a confirmed reversal, so traders should look for additional signals after CHOCH.
4
The first BOS in the new direction provides additional reversal confirmation.
After CHOCH, a new sequence of highs and lows can indicate that the market has actually begun restructuring.
5
BOS and order blocks can be used together.
After a structural break, the order block preceding the impulse becomes a potential area for finding an entry during a pullback.
6
A liquidity grab helps evaluate a structural break.
Subsequent price action and the appearance of BOS or CHOCH can help determine whether the move beyond a level was a temporary liquidity grab or the beginning of a structural change.
7
On a Funded Account, market structure helps manage risk.
BOS and CHOCH provide reference points for Stop Loss placement, while the distance to the structural level can be used to calculate position size based on a predefined amount of risk.
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