What is Change of Character?
A Change of Character (CHoCH) is a significant shift in how price moves and behaves. It signals that smart money is shifting positions and market structure is changing. When the character of price action changes, it often indicates a major reversal or trend change is underway.
How CHoCH Appears on Charts
Change of Character manifests as:
- Shift from large candles to small candles (or vice versa)
- Change from trending to choppy/consolidating action
- Reduction in volume and momentum in the current trend direction
- Candles starting to close inside previous candle bodies (indecision)
- Price failing to make new highs/lows despite continued attempt
- Wicks forming in opposite direction to the prevailing trend
The Importance of CHoCH in Trading
Recognizing CHoCH early gives you:
- Early warning that the trend may be ending
- Time to tighten stops before reversal
- Opportunity to enter reversals early
- Ability to exit losing trades before major losses
- Confidence to take contrarian trades when conditions align
Stages of Change of Character
CHoCH typically develops in stages:
Stage 1 - Reduced Momentum: Candles become smaller, and price starts to struggle. Volume begins declining in the current trend direction.
Stage 2 - Indecision: Price moves inside previous candle bodies. Wicks form against the trend. Close-to-close price differences shrink significantly.
Stage 3 - Reversal Signal: An engulfing candle or break of structure in the opposite direction confirms the reversal.
Trading Change of Character
The safest approach is waiting for the reversal confirmation (stage 3). Entry rules:
- Observe stages 1-2 (reduced momentum and indecision)
- Look for a break of recent structure in the opposite direction
- Enter on this break of structure with confirmation candle
- Place stop above/below the reversal candle
- Target previous swing level or order block
CHoCH vs. Fake Reversals
Not every change of character leads to a full reversal. Distinguish real CHoCH from fakes by checking:
- Does a break of structure confirm the CHoCH? (Essential)
- Is there order block support/resistance at this level?
- What does the higher timeframe show? (Always verify on daily)
- Is volume confirming the move or declining?
Real-World CHoCH Example
GBP/USD is in a strong uptrend with large bullish candles. Suddenly, candles become smaller (Stage 1). Over 5 candles, price fails to make new highs and starts forming lower highs (Stage 2). Then a bearish engulfing candle forms that closes below the recent low (Stage 3 – reversal confirmation). This is your signal to exit longs and consider entering shorts, especially if a previous order block exists below current price.
FAQ
A: CHoCH can develop over 3-10 candles, depending on the timeframe. On daily charts, it might take weeks; on 4-hour charts, days.
A: Yes. Sometimes CHoCH signals consolidation before continuation. Always wait for break of structure to confirm the direction.