Free lesson · Technical analysis

Market structure, BOS and CHOCH as a state machine

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• Define confirmed highs and lows first. A pivot with k bars required on its right becomes known k bars after the extremum.
• A simple up-state requires confirmed higher highs and higher lows; a down-state uses lower highs and lower lows. Otherwise label neutral/uncertain.
• BOS = break of structure, commonly in the established direction. CHOCH = change of character, commonly a break opposing that direction. These labels are not universally standardized.
• For this lesson, an up-state close above the last confirmed high is bullish BOS. A close below the protected confirmed low is bearish CHOCH. Mirror the definitions in a down-state.
• Use completed-close breaks with an optional prior-volatility buffer. A wick-through variant is a separate detector.
• Specify which low is “protected,” what happens after CHOCH and how re-entry into a trend is confirmed. A warning flag need not immediately reverse the state.
• Preserve event timestamps, breached level IDs and every state transition. Labels plotted at historical extrema must not imply earlier knowledge.

Use the rule

• Fix the definition, units and information timestamp.
• Compute the example and inspect the graph.
• Compare with a simple baseline on untouched periods after costs.

Before moving on

Write the exact rule, its availability time, an invalidation condition and a fair out-of-sample test.

From chart labels to a research table

• Store one row per completed decision time: instrument, venue, bar end, confirmed pivot IDs, prior state, level distance, trigger and feature version.
• Add returns only after the stated outcome horizon matures. Track all candidates, failed signals and expired zones.
• Start with a rule-only or simple statistical baseline. Then compare numerical features, shapelets and learned representations under the same split, horizon and costs.
• FVG, BOS, CHOCH, Gann and harmonic terminology varies. This targeted research review did not establish a universally profitable implementation of these named conventions. Treat them as testable hypotheses.

def structure_flags(close,confirmed_high,protected_low,state="up"):
    if confirmed_high<=protected_low or state not in ("up","down"): raise ValueError("Ordered levels and explicit state required")
    if state=="up": return {"bos":close>confirmed_high,"choch":close<protected_low}
    return {"bos":close<protected_low,"choch":close>confirmed_high}

print(structure_flags(111,110,104))