4. Break of structure and change of character
Two terms are very popular among price action traders today. They sound fancy, but they describe simple ideas you already know.
4.1 BOS – Break of Structure (continuation)
In an uptrend, when price breaks above the last higher high, the trend continues. That is a bullish BOS. It confirms buyers are still in control.
In a downtrend, a break below the last lower low is a bearish BOS.
A BOS is good news for the existing trend.
4.2 CHoCH – Change of Character (possible reversal)
In an uptrend, the important line is the last higher low – the low that started the most recent push to a new high. When price closes below that higher low, the character of the market has changed. Buyers failed to defend their last line. That is a bearish CHoCH.
In a downtrend, a close above the last lower high is a bullish CHoCH.
Imagine an army defending a fort. Every time the enemy attacks, the defenders hold the wall and even push forward (higher lows and higher highs). The day the enemy breaks through the wall the defenders were guarding (the last higher low) – the battle has changed. It may not be over, but the defenders are now on the back foot.
4.3 Has it broken? Test yourself
4.4 What to do after a CHoCH
A CHoCH is a warning, not a guaranteed reversal. Practical steps:
- If you hold a buy trade – this is often your exit (your stop was below the higher low anyway).
- Don’t buy new longs until a new higher low and higher high form.
- Aggressive traders may look for a short on the next rally that fails to make a new high (a new lower high). Beginners should simply stay out.
A quick wick below the higher low that closes back above is often a "stop hunt" – price grabs the stop-losses below the low and reverses. Many traders wait for a candle close beyond the level to confirm the break.
Sach bataun? BOS and CHoCH are just new names for Dow Theory ideas that are over 100 years old. Names don’t matter. What matters is the question: "Did buyers defend their last higher low or not?" Answer that and you know the character of the market.
Breaking above the last HH confirms the uptrend is continuing.
The last higher low was the buyers’ line. A close below it changes the character of the market.
- BOS (break of structure) = the trend breaks its last extreme and continues.
- CHoCH (change of character) = the trend fails to defend its last higher low (or lower high). A warning of reversal.
- Wait for closes, not just wicks.
- After a CHoCH, exit longs and avoid new ones until a fresh uptrend structure forms.
- Ek line mein: Asli sawaal ek hi hai – buyers ne apna aakhri higher low bachaya ya nahi?