Market Structure Glossary: BOS, CHoCH, Order Block, FVG, Liquidity Pool

Smart-money concepts (SMC) use a specific vocabulary for market structure. These terms identify where institutional orders cluster and where liquidity rests. Below are operational definitions, not theory.

BOS (Break of Structure)

A continuation signal: price breaks the most recent swing high (in an uptrend) or swing low (in a downtrend) in the direction of the prevailing trend. Confirmation requires a close beyond the swing, not just a wick.

BOS validates trend continuation. The new entry is typically on the pullback to the broken level after the BOS.

CHoCH (Change of Character)

The first counter-trend structural break. In an uptrend, price breaks the most recent higher-low — a lower-low forms. CHoCH alone is not a reversal; it is a warning that the prior trend's structure has cracked.

The difference from BOS is direction: BOS continues the trend, CHoCH breaks against it. Many false CHoCHs occur in ranges — wait for confirmation (a new swing in the opposite direction) before treating it as reversal.

Order Block (OB)

The last opposite-color candle before a strong impulse move that breaks structure. The theory: institutional orders rest at that candle's origin. Valid OBs have:

• A strong impulsive move away (3+ momentum candles).
• An FVG left behind (imbalance).
• Price returns to the OB and reacts.

Not every opposite candle is an OB. Without the imbalance and displacement, it is just a candle.

FVG (Fair Value Gap / Imbalance)

A three-candle pattern where the first candle's high and the third candle's low do not overlap, leaving a gap in price delivery. Bullish FVG: candle 1 high < candle 3 low. Bearish FVG: candle 1 low > candle 3 high.

FVGs act as magnets — price tends to return to fill them. Use as entry zones; stop beyond the gap.

Liquidity Pool

A price level where stop orders cluster — typically above equal highs or below equal lows. Visible liquidity: prior session highs/lows, weekly open, round numbers. Hidden liquidity: orders sitting just beyond obvious levels.

Liquidity sweeps (stop runs) occur when price spikes beyond a pool, triggers stops, then reverses. Equal highs above resistance are the most common sweep target.

Operational sequence

Most SMC setups follow the same sequence: identify trend (HH/HL or LH/LL) → wait for BOS or CHoCH → mark the Order Block or FVG left behind → wait for price to return to the OB/FVG → enter with stop beyond the structural swing. Risk is defined by the OB; target is the next liquidity pool.