Break of Structure vs Change of Character 

What is the CHoCH Concept and How Does It Work? 

CHoCH (Change of Character) is an indicator commonly used in market structure analysis. Its appearance on the chart signals a potential reversal in the current price trend or a loss of momentum in that trend. 

The CHoCH indicator has several signals: 

Bullish CHoCH: Indicates a shift in the current market structure from bearish to bullish, suggesting a potential price increase. 

Bearish CHoCH: Indicates a shift in the current market structure from bullish to bearish, suggesting an imminent price decrease. 

It is worth noting that CHoCH+ is a stronger indicator of a trend reversal compared to CHoCH, but both provide an early signal of a potential change in the current market structure. 

Understanding the CHoCH Patterns 

Bullish CHoCH: 

The Bullish CHoCH indicator pattern begins with an L-shaped low (L), followed by a lower high (LH) than the previous high. A new lower low (LL) then forms below the initial low (L). Finally, a strong price rise occurs, forming a higher high (HH) that breaks the level of the previous lower high (LH). 

Bearish CHoCH: 

The Bearish CHoCH indicator pattern begins with an H-shaped high (H), followed by a higher low (HL) than the previous low. A new higher high (HH) then forms above the initial high (H). Finally, a strong price drop occurs, forming a lower low (LL) that breaks the level of the previous higher low (HL). 

What is the BOS Concept and How Does It Work? 

While the CHoCH indicator signals a potential change in the trend, traders are familiar with another indicator that confirms the continuation of the current trend: BOS. 

BOS (Break of Structure) is an indicator commonly used to confirm the continuation of the current price trend. Traders who use this indicator are known as SMC or ICT traders. 

The BOS indicator has two signals: 

Bullish BOS: Appears when the price successfully breaks a previous high and forms a new higher high within an uptrend, indicating that the price will continue rising. 

Bearish BOS: Appears when the price successfully breaks a previous low and forms a new lower low within a downtrend, indicating that the price will continue falling. 

Understanding the BOS Patterns 

Bullish BOS: 

The Bullish BOS indicator appears when the price moves to form a new low (HL) that is higher than the previous low. This is then followed by a higher high (HH), which breaks the previous high. Repeating this indicator suggests that the price rally is ongoing and strong. 

Bearish BOS: 

The Bearish BOS indicator appears when the price moves to form a new high (LH) that is lower than the previous high. This is then followed by a strong price drop that forms a new lower low (LL), which breaks the previous low. Repeating this indicator suggests that the price decline is ongoing and strong. 

CHoCH vs. BOS: What is the Trading Strategy for Each? 

To build a successful trading strategy, you must distinguish between the BOS structure breakout and the CHoCH character change when they appear on the chart. Despite their nuances, they are two opposing indicators: one signals continuation, and the other portends an impending change.   

• BOS Trading Strategy (Break of Structure):  

As mentioned, traders use this indicator as a confirmation tool. Once it appears, traders either open new trades or continue with an existing trade to capitalize on the sustained price movement.  

• CHoCH Trading Strategy (Change of Character):  

While BOS is a confirmation tool, CHoCH is a warning tool. Its appearance on the chart indicates a potential trend reversal or loss of momentum. This indicator is essential for risk management, as it helps traders identify the correct entry and exit points before the market completely reverses.  

BOS vs. CHoCH with Other Technical Analysis Tools 

Like all technical analysis tools, BOS and CHoCH should not be relied upon alone. It is best to combine them with other technical indicators to confirm their validity, make more accurate trading decisions, and reduce risk.  

Complementary Technical Analysis Tools: 

• RSI (Relative Strength Index) or Momentum Indicator:  

The RSI measures the speed and change of price movements. 

• Combined with BOS: If the goal is to confirm trend continuation and the RSI shows a strong rise, this confirms the BOS signal that the trend is strong and likely to continue.   

• Combined with CHoCH: To verify a potential trend reversal, if the RSI shows a weakening trend, this supports the CHoCH warning that the market is about to change its course.  

• MACD (Moving Average Convergence Divergence) or Trend Indicator:  

The MACD shows the relationship between two moving averages of an asset’s price. 

• Combined with BOS: If the MACD line is above the signal line, this confirms a clear uptrend, further validating the probability of trend continuation.  

• Combined with CHoCH: If the MACD line begins to cross or move toward a reverse crossover, this confirms the CHoCH warning that the trend is losing strength and may reverse. 

BOS Vs. CHoCH: Which is More Reliable? 

Although both indicators share the characteristic of a structure break, the differences between them are pivotal. Technically, they both have the same degree of reliability in breaking an important level in the market structure. 

The difference lies in their Direction and Goal: 

BOS tells you to continue in the same direction, indicating that the current trend is strong. 

CHoCH warns you that the trend is about to reverse, signaling a loss of momentum or weakness. 

Therefore, neither indicator is inherently more reliable than the other, it depends on your trade direction and what you are looking for.  

It is worth noting that the CHoCH indicator may give you more points to profit from the trade because it identifies the start of a full change in the trend. 

Can You Trade Using the BOS Indicator Alone? 

If you have correctly identified the market trend (bullish or bearish), the BOS indicator provides a potential confirmation that this trend will continue. Consequently, it can be a potential entry point for a new trade or for continuing your open trade. 

You can confirm the indicator using additional tools, as mentioned previously, to increase reliability and avoid false breakouts or price traps before the price reverses. This approach yields more reliable results and reduces risk before executing or continuing any trade. 

In nutshell  

Always ensure you combine the indicator you rely on with other technical analysis tools. While each indicator has its pivotal role on the charts, combining these tools completes the larger picture for trading. 

And remember: You trade to make a profit, not a loss! Be patient, avoid bias and emotions, and try trading with Naqdi to get real-time trading insights that make your trades more profitable and effective.