SMC Market Structure: BoS and CHoCH Made Simple

If you struggle with knowing whether a trend is likely to continue or reverse, this guide will help you get clarity. I’m going to walk you through the exact way I read SMC market structure using simple, mechanical rules that work on any timeframe.

Everything here is straight from how I trade. No indicators. No guesswork. Just structure shifts, BoS, CHoCH, and clean charts.

This is the foundation for any smart money trading strategy. It helps you understand market structure by removing retail noise and letting you focus on real market movements rather than every bullish or bearish candle that pops up.

Let’s get into it.

What SMC Actually Is (And Why It Matters)

Smart Money Concepts (SMC) is basically reading institutional order flow in a simple, easy-to-understand way.

Instead of chasing indicator signals or reacting to every little move retail traders get trapped by, you’re watching how price breaks structure, where liquidity zones are building, and where institutional footprints show up.

It’s not magic. It’s not some hidden formula. It’s just a cleaner way to understand market behavior.

SMC market structure is your base layer. It helps SMC traders interpret price movements, avoid false signals, and see when a potential trend reversal is actually forming.

The Three Market States You Need to Know

Before we get into BoS and CHoCH, we need to talk about the only three things a market can do:

1. Uptrend: Higher highs and higher lows. Clear trend, price swings expanding.

2. Downtrend: Lower highs and lower lows. Momentum carries the price in one direction.

3. Consolidation: The market moves sideways in a consolidation phase, building liquidity and setting up the next move.

These phases show up on every currency pair and every timeframe. Understanding market structure starts with recognizing which phase you’re in.

Internal vs. External Highs and Lows (Most Overlooked Concept)

Every timeframe has two sets of swing points:

• External highs/lows: Major swing points that define structure.
• Internal highs/lows: Lower-timeframe noise inside those swings.

If I’m on the 1-hour chart, I only care about H1 swings. Those are the key levels institutions respect.

The internal structure inside those swings is just retail noise. It can tempt forex traders into false breakouts, false signals, and entries against the actual structure.

So here’s the rule:

Pick a lane. Choose one timeframe to define structure.

For most people, the hourly timeframe is perfect. It reduces noise, gives you enough opportunities, and helps you see real price moves without reacting to every small fluctuation.

Stick to H1 for market structure analysis. Use lower timeframes later to refine entry zones, not to define the trend.

You can experiment with lower time frames to develop a directional bias, but remember that the lower you go, the more noise you’ll see on the charts.

Break of Structure (BoS) vs. Change of Character (CHoCH)

These two concepts are the core of SMC market structure and smart money trading.

Break of Structure (BoS)

A BoS is a trend continuation.

If we’re in an uptrend and price closes above a previous high—that’s a bullish BoS. If we’re in a downtrend and price closes below the previous low—that’s a bearish BoS.

Wicks don’t count. You need a body close. This helps you avoid false signals and stay aligned with the current trend.

The candle “close” I’m referring to is whatever time frame you’re analyzing. If you’re on the 1-hour chart, it’s a 1-hour close. If you’re on the 30-minute chart, it’s a 30-minute close.

Change of Character (CHoCH)

A CHoCH signals a potential trend reversal.

If price has been making higher highs and higher lows, but then closes below the last external low—that’s bearish CHoCH.

If price has been making lower lows and lower highs, but then closes above the last external high—that’s bullish CHoCH.

It’s the market flipping characters, as in bull-to-bear or bear-to-bull.

A CHoCH often comes right before price returns to fill Fair Value Gaps (FVGs) or sweep liquidity zones. That’s where many SMC trading strategy setups come from.

How to Confirm a Real CHoCH (Not a Fake One)

This is where most retail traders get it wrong.

A valid CHoCH must break the swing that produced the last BoS.

If you pick the wrong swing, you’ll misread structure every time.

Internal highs and lows do not count. They live inside the bigger structure and create confusion.

This one rule alone can help you avoid false breakouts, avoid false signals, and keep you aligned with institutional order flow.

How I Use BoS and CHoCH on a Real Chart (EURUSD Example)

Here’s how I break down structure on a real H1 chart.

1. Identify the trend

EURUSD is trending lower—lower highs, lower lows. Clear trend.

2. Mark external highs and lows

Only the key levels that define the structure. I want to focus my attention on the external highs and lows. Nothing internal.

3. Watch for a BoS or a CHoCH

Price closes below a swing low → bearish BoS. Sellers remain in control.

Every EURUSD break of structure confirms sellers are in control. That means I only want to look for shorts into pockets of buy-side inefficiencies.

4. Continue Watching for a BoS or a CHoCH

After several bearish break of structures, we have a 1-hour candle close above an external high. This was the first instance of buyers mitigating an external high since the downtrend began.

Once the price reaches and closes above the previous high, buyers take control.

5. Anticipate a move to target inefficiencies (liquidity)

After a change of character like this, the market will usually target liquidity first, tap a bearish order block, or FVG before continuing.

Large buyers and sellers need liquidity to fill their orders. That’s why you’ll often see these moves into liquidity zones before big moves.

I’ll explain these concepts in future blog posts. For now, we’re only concerned with forming a directional bias using a clean market structure.

6. Track structure as it evolves

Once the trend flips bullish, the same rules apply in reverse. New highs, new lows, new trend.

This keeps you from shorting into strong support zones and trading with the big market players instead of against them.

Note that we’re simply repeating the same process regardless of the trend. Mark the external highs and lows, and watch for either a break of structure or a change of character.

Why Traders Misread BoS and CHoCH

Some common mistakes to avoid:

• Using internal structure instead of external swings
• Treating BoS levels like breakout signals and buying or selling from that level
• Using wicks instead of body closes to confirm a BoS or CHoCH
• Ignoring higher time frames and dropping straight to a 5-minute or 1-minute chart
• Taking long positions or sell orders against structure shifts

Most retail traders fall into these traps because they try to combine 5–6 timeframes and call it “technical analysis.”

But you only need one timeframe to define structure and one lower timeframe to refine entry zones. Keep it simple.

Why This Approach Works

It keeps you on the right side of the market. Pure and simple.

You’re not guessing. You’re not reacting to retail noise. You’re reading pure structure and institutional footprints in a 100% mechanical way.

By doing this, you’ll start avoiding:

• False breakouts
• Trading against momentum
• Getting trapped when the price drops into liquidity
• Overtrading during consolidation phases
• Trades that move in the opposite direction right after entry

This helps you manage risk more effectively and build long-term success rather than giving back your gains to the market.

How to Put This Into Practice (Simple Checklist)

Here’s what I recommend:

1. Pick your structure timeframe (H1 is best when you’re learning).
2. Identify external highs and lows only.
3. Mark BoS and CHoCH using body closes.
4. Ignore internal noise completely.
5. Use BoS/CHoCH to stay aligned with the current trend.
6. Track fair value gaps and liquidity zones for better entry zones.
7. Watch how price reaches and reacts to key levels.
8. Consider volume analysis only if it helps, not if it complicates your trading approach.
9. Practice using paper trading before risking real capital.

This is the cleanest way to understand market structure and see price movements without confusion.

Final Thoughts

SMC market structure isn’t complicated once you understand the key elements—external swings, BoS, CHoCH, and how to avoid false signals.

If you follow these basics, you’ll naturally read market conditions better and start spotting when a new trend is forming. You’ll also avoid trading during the distribution phase or chasing price moves without structure.

This is how traders learn to read structure like smart money and avoid the knee-jerk reactions that get retail traders in trouble.

If you enjoyed this breakdown, subscribe to my YouTube channel because I have a lot more SMC content like this coming out every week.

Frequently Asked Questions