Change of Character (CHoCH) Explained: Learn The SMT Strategy

A Change of Character (CHoCH) is an indication that the current market structure is expected to reverse. Discover how to use the strategy to make profits.

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Change of Character (CHoCH) is a popular trading concept to identify potential trend reversals. The valuable indicator can guide you in determining potential trade opportunities and smart money moves.

In this blog, we will understand the Change of Character CHOCH strategy, types, how to trade it with benefits, and tips. So let’s get started.

What is A Change of Character (CHoCH)?

A Change of Character (CHoCH) indicates a change in the current market structure, suggesting that the current trend is likely to reverse or lose momentum.

Suppose the EUR/USD is trending up and breaks below the recent low. In this case, a bearish CHOCH may appear, suggesting that a bullish trend is going to reverse.

Types of CHoCH

Bullish CHoCH:
A bullish CHoCH is when the current market structure is expected to shift from bearish to bullish. It indicates that traders to open a buy position.

Bearish CHoCH:
A bearish CHoCH is when the current market structure is expected to shift from bullish to bearish. It indicates that traders to open a sell position.

How To Trade the Change of Character

Now that you have understood what the CHoCH is, it’s time to learn trading. Here is the step-by-step process of trading CHoCH:

Identify the Trend

The first step is to determine the prevailing market trend. Identifying the current trends and strengths will help you in analyzing the shift in market behavior. For this purpose, you can use a chart, select multiple time frames, trendlines, moving averages, or organize market structure to define the trend.

Determine Key Trade Levels

Once the trend is identified, the next step is to identify key support and resistance levels. These are the levels where whenever the price reaches, it indicates something valuable. A CHoCH is most likely to appear near these significant areas, so watch these levels.

Spot the Break of Structure (BoS)

The Change of Character begins when the market breaks its existing structure. In the bullish CHoCH,  instead of continuing to make higher highs and higher lows, the price suddenly makes a lower low, while in a bearish market, the opposite scenario occurs. At this stage, you can identify the potential for price reversal.

Organize Technical Analysis

After identifying a structural break, it’s time to analyze the technical analysis conditions. Identify the Change of Character candlestick by analyzing the charts, using technical analysis indicators and patterns. Indicators such as  RSI or MACD are best for this strategy.

Confirm the CHoCH

Confirmation is a must when trading CHoCH or BoS. You can check the volume for it. A high volume suggests strong signals and vice versa. Also, you can use Volume Profile, Moving Average Crossovers, or Bollinger Bands to confirm the momentum.

Trade the CHoCH

Once the CHoCH is confirmed, traders can enter immediately after confirmation and earn a good profit, but the risk will also be significant. Traders can even wait for the price to retest the broken structure. This will help in identifying breakouts and making informed decisions.

Why Use The CHoCH Strategy

  • The CHoCH is undoubtedly a great indicator to identify market reversals that too at the right time. This will help in making the right trade decisions.
  • CHoCH is quite a compatible indicator. You can integrate it with the break of structure or many other concepts and trade in a diverse time frame.
  • The concept of CHoCH works across the Markets, including the forex, stocks, commodities, indices, cryptocurrencies, and others.
  • Easy to understand and use. Also, you can use the strategy for both short-term and long-term time frames.
  • You can confirm the CHoCH using multiple trading indicators or volume analysis. This will improve the decision-making.

Tips to Trade CHoCH

  • Have a robust risk management plan, use the right order type, and always trade with a stop loss.
  • A CHoCH can sometimes give false signals or may result in fakeouts. So always trade the concept with confirmations.
  • Volume is the most important element when using CHoCH. Track volume throughout trading to make effective trade decisions.
  • Avoid using the strategy in choppy, highly volatile, and unpredictable markets.
  • Use the strategy on a demo account first and have proper practice. You can even open a demo account with us and try this strategy.

CHOCH vs BOS

Generally, traders confuse CHOCH with BOS; however, both are interrelated yet different concepts. A change of character (CHOCH) is a shift in the current market structure that gives key insights into trend reversal.

Meanwhile, A break of structure (BOS) occurs when the price moves above a swing high in an uptrend and suggests a bullish trend continuation, while below the swing low in a downtrend and suggests a bearish trend.

Bottom Line

A Change of Character CHoCH is undoubtedly a great concept to trade currencies, commodities, stocks, indices, and other financial assets. However, like any other strategy, it requires proper confirmation and the right psychology. 

Also, any strategy is useless if you don’t have proper knowledge. So, first grab a practical understanding of the market and how it works, and then start trading.

FAQ

A Change of Character (CHoCH) in a chart is when the technical analysis conditions indicate a change in the current market structure. 

Yes, if used correctly, the CHoCH trading strategy will give you good profit. 

Use trading charts, identify key support levels, watch for significant moves, and apply a technical analysis indicator to identify BOS and CHoCH.

Change of character (CHOCH) is a shift in the current market structure that gives key insights into trend reversal. While CHoCH+ is when traders don’t act immediately but wait for volume increase and price retest.