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By Admin
Posted on November 11, 2024
As we continue exploring all the topics of SMC, we have now reached the concept of Change of Character. This is very helpful for traders in identifying the beginning of a new trend, which makes it essential to understand.
In this article, I will discuss how to identify a change of character, the factors that influence it, and clear up the confusion many people have between change of character and break of structure. I’ll explain the difference between the two, highlight the best times when change of character is most effective, and, finally, share how to trade it with a solid strategy.
So, let’s get started with today’s article!
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A change of character happens when the market breaks an existing trend and begins a new one. To understand this, let’s take an example. In an uptrend, we observe a pattern of higher highs and higher lows forming consistently. This is also known as a break of structure, which I’ve already discussed. However, when the price, after making a new high, then breaks the previous higher low and moves down, this shift is what we call a change of character.
Look at this chart; it will help you understand better what I’m trying to show and explain.
Alright, so you understand the change of character, but now let’s look at how to trade it. When there’s a change of character in the market, we don’t immediately enter the trade. In this bullish example, after a change of character, the price usually returns near its Change of Character (ChoCh). Here, we identify areas like an order block, a fair value gap, or a bearish candlestick to make our entry. I’ll discuss this in more detail further on.
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To identify a change of character, first identify a break of structure. Whenever the previous higher low is broken, you can mark that point as the change of character, as this signals the shift in trend.
Several factors can trigger the start of a change of character, such as geopolitical events, the release of economic data, or shifts in market sentiment. A change of character can also begin when the price reaches a critical support or resistance level. In such cases, there’s always some underlying force or sector creating the influence needed to trigger this shift—it doesn’t just happen on its own.
What is a change of character? It refers to the start of a reversal in a trend, which is called a change of character.
But when a break of structure occurs, it indicates the continuation and strength of the trend. Do you understand?
A change of character shows the strength of a trend reversal, while a break of structure indicates the strength of the trend’s continuation.
this is the key difference between a break of structure and a change of character.
get helpful insight about Choch
Now, let’s discuss which timeframe a change of character works best on. This can vary depending on the asset, whether it’s gold, silver, crypto, or currency pairs like EUR/USD. Each may behave differently, so you’ll need to analyze the specific movement of the asset to determine the most effective timeframe for observing a change of character.
I won’t tell you directly which timeframe is the best to use, like 15 minutes or 30 minutes, because you’ll need to figure it out yourself based on which timeframe works best for the specific pair. It requires time and experience to identify this. However, if you want to learn all of this perfectly, you can join my institute. We offer free lessons, and you can contact us for more details. I’ll drop my number below so you can reach out, and then we can discuss everything further.
In this discussion, I will focus on a bearish trend and how it can convert into a bullish one. To trade a change of character, the first step is to identify the trend continuation, which means recognizing break of structures. By doing this, you’ll understand the strength of the trend, as it helps determine whether the trend is continuing or reversing.
After this, try to notice that once a lower low is made, and the market breaks the previous higher low, this break indicates a change of character. As soon as this happens, mark it as the change of character. This way, you’ve learned how to identify a change of character before entering a trade.
We’ll now learn how to trade with a change of character. Unlike a break of structure, where we enter immediately after the break, in the case of a change of character, the entry happens after a retest. After the price makes a new higher high and then a change of character occurs, the price will often return near the Change of Character (ChoCh) for the retest. This is when you need to identify an order block. I’ve already discussed and explained order blocks in my earlier articles, so you can refer to them. I’ve provided the link, so you can read more about it.
The second thing you need to identify is whether there is a Fair Value Gap (FVG) present. If there is an FVG, it gives us even more confirmation, which helps improve the trading psychology. I’ve also discussed FVGs in my earlier articles, and you can read them as well. I’ve provided the link for you to check out.
When the market taps into the area of the Fair Value Gap (FVG) and the order block, the next step is to wait for a bearish candlestick pattern to form, such as a shooting star or a tweezer top. Once this candlestick pattern forms, you can enter the trade. Set a small stop loss above the high of the candlestick pattern and aim for the next support zone as your target. Hold the trade while keeping the stop loss based on the candlestick’s high.
This covers everything about the change of character. You can use this to identify the start of a new trend, whether it’s bullish or bearish, which will give you the opportunity to catch trades in both directions. I’ve taught you everything about change of character—from identifying it to how to trade it, the factors that influence it, and which timeframes to use. You now have a complete understanding of the concept and its application in trading.
And if you want to join my institute, feel free to contact me.
If anyone needs any changes in the article, don’t hesitate to reach out. Best of luck to all traders, and especially to the new traders, wishing you a happy trading life! Keep trading smart and safe.
