On this page (7 sections)
Mark the swings first
A swing high is a candle whose high is above the highs on either side, and a swing low is the mirror. A higher high (HH) or lower high (LH) is measured against the last swing high, and a higher low (HL) or lower low (LL) against the last swing low.
HH, LH, HL and LL describe single swings; the trend itself turns only on a close. An uptrend survives a lower high, and even a wick to a lower low, until a candle closes below the last confirmed swing low.
A swing low is confirmed once a few candles have printed above it without trading below it, with no new high required, and swing highs mirror this. Finora, an AI trading assistant on Telegram, marks swings with five candles on each side, so a 4h swing confirms about 20 hours after it prints. Its chart table also shows the trend-flip level: the close that would turn the trend on that timeframe.
What a break of structure is
A break of structure (BOS) is a candle close beyond the last confirmed swing in the trend’s direction: above the last swing high in an uptrend, below the last swing low in a downtrend. Each bullish BOS sets a new protected low, the confirmed low that launched the leg which broke the high.
The BOS candle usually closes near its high, far from the low that would prove the trend wrong, so we wait for the pullback into the fair value gap or demand zone the breaking leg left. A close just over the high followed by small overlapping candles still counts as a BOS, but it leaves no clear gap to buy, so we wait for a pullback that holds above the broken high.
If the next candle closes back below the level, the BOS failed. The traders who bought the breakout close are now trapped, and the move plays out like a slow sweep. A trade on that return is a new one, at smaller size, with its stop beyond the wick of the failed break (see sweep vs breakout).
What a change of character is
A change of character (CHoCH) is the first close beyond the last confirmed swing against the trend: below the last confirmed swing low in an uptrend, above the last confirmed swing high in a downtrend. It turns the swing trend on that timeframe, and trades that relied on that swing are closed.
If the next candle closes back inside, the CHoCH failed, and the same rule applies as for a failed BOS. A CHoCH that holds ends the case for longs on that timeframe, but a short still needs its own structure: a lower high, then a close below the low of the drop, which is the first bearish BOS.
BOS and CHoCH side by side
| BOS | CHoCH | |
|---|---|---|
| What breaks | Last confirmed swing high (uptrend) or low (downtrend) | Last confirmed swing low (uptrend) or high (downtrend) |
| Direction | With the trend | Against the trend |
| Open trades | Trades with the trend stay on | Trades built on that swing are closed |
| Next trade | The pullback after the break | The pullback after the first BOS the other way |
A worked example on the 4h
Every price here is invented. ETH is in a 4h uptrend. A leg from 3,120 closes above the 3,350 swing high (a bullish BOS) and runs to 3,520 without a pullback. Price drops to 3,290, bounces to 3,410 and turns down. With five candles on each side of 3,290 and 3,410, both are confirmed, and no newer swing low has confirmed on the way down from 3,410:
- 3,520, the higher high
- 3,410, a lower high (the uptrend still stands)
- 3,290, the last confirmed swing low and the CHoCH line
- 3,120, the protected low, where the BOS leg started; some Smart Money Concepts (SMC) courses treat a close below it, rather than below 3,290, as the CHoCH
Stops cluster under 3,290 and 3,120 and above 3,410 and 3,520, so targets sit 10 points in front of them. Recent 4h wicks ran 20 to 30 points past their levels, so stops go 40 points past the level or wick they hide behind. Each trade exits on its invalidation close or at the stop, whichever comes first. 1R is the distance from entry to the stop.
Case one, a sweep. A 4h candle wicks to 3,268 and closes at 3,301. Nothing closed below 3,290, so there is no CHoCH, and the wick ran the stops under the low. We buy the close at 3,301 and exit on a 4h close below 3,290, with the stop at 3,228 under the wick, 73 points away. Half comes off at 3,400 for 1.4R and the rest at 3,510 for 2.9R, about 2.1R if both fill. Once 3,268 confirms as a swing, the trend-flip level in Finora’s table moves down to it. Our exit stays at 3,290: this trade is built on the sweep of 3,290 holding, and following the level down would loosen the exit after entry. A close at 3,280 would then no longer take us out, even though 3,290 broke (see the liquidity sweep guide).
Case two, the CHoCH holds. A 4h candle closes at 3,262, and longs built on 3,290 are out. The fast drop leaves a bearish fair value gap from 3,300 to 3,325. Three more candles close lower to a 3,230 low, and the bounce wicks into the gap to 3,320 without a close above 3,290. Once 3,230 and 3,320 confirm, a close at 3,214 is the first bearish BOS, the next two candles also close below 3,230, and the breaking leg leaves a second gap, 3,270 to 3,285.
We short the pullback with a limit at 3,275 in that gap. The invalidation is a 4h close above 3,320, which by then is the last confirmed swing high and Finora’s trend-flip level. The stop goes at 3,360, 85 points away. The target is 3,130, just above the stops under 3,120: 145 points, about 1.7R.
If the CHoCH fails instead. The 3,262 candle is followed straight away by a close back above 3,290. The traders who sold that close are trapped, and the 4h trend still reads bearish until a close above 3,410. Any long on that reclaim is a new trade with its own plan, at smaller size; the invalidation guide walks through a failed CHoCH with numbers.
In case two, four candles closed below 3,290 and the bounce into the gap was sold. So the market has accepted lower prices: the sellers are in profit and their stops are no longer close, and we don’t buy a later close back above 3,290. We wait for a close above the last confirmed swing high (3,320 until a lower high confirms), which is a bullish CHoCH, then buy the pullback after the first bullish BOS.
Where the labels go wrong
- Drawing the line at an unconfirmed low. Two candles after price turned up from 3,290, that low wasn’t confirmed and the line was still 3,120. A dip under 3,290 then would only have deepened the pullback.
- Selling the CHoCH candle. A short at 3,262 comes before the drop has a confirmed low to break, and the only swing above to hide behind is 3,410. Its stop goes at 3,450: 188 points of risk for 132 to 3,130, about 0.7R. If the CHoCH then fails, that short is already on the wrong side of the reclaim.
- Reading a 1h CHoCH against the daily as a reversal. While the daily trend is down, a bullish 1h CHoCH is usually a bounce inside that downtrend, often capped near the daily’s last lower high. Finora’s reads call it counter-trend and ask for more confirmation.
What a Finora read shows on this chart
A Finora read’s chart table shows the last confirmed swing high and low and the close that would flip the trend: at the setup, a 4h close below 3,290. Under the read, Watch levels alerts you when price reaches one of the plan’s levels. It fires when price touches the level, before the candle closes, so check the close on the chart yourself.