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'.
The Power of Three is an ICT concept describing the three-phase cycle that institutional traders use within each session or candle: accumulation, manipulation, and distribution. During accumulation, smart money builds positions quietly. Manipulation creates a false move to trigger retail stops and generate liquidity. Distribution is the real directional move where institutions deliver price to their target, profiting from the liquidity gathered during manipulation.
Premium and Discount zones divide the current price range (from the swing low to swing high) into halves using the equilibrium (50%) level. Discount = below 50% (cheap, look to buy). Premium = above 50% (expensive, look to sell). This concept ensures traders are buying low and selling high relative to the current range.
A breaker block is a failed order block that becomes a powerful support or resistance level when price returns to it from the opposite side. When institutional buying or selling at an order block is overwhelmed and price breaks through, the original order block transforms into a breaker block. Smart money uses these levels to re-enter in the new trend direction as they represent an area where the previous thesis was invalidated.
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.