Best Change of Character CHoCH Model in Forex Trading with SMC Smart Money Concepts

Most of the SMC traders get Change of Character CHoCH WRONG!

In this article, I will share with you Change of Character models that have a low accuracy and better to be avoided.

I will teach you the best CHoCH model for Forex trading and show you how to identify it easily.

Let's start with the basic theory first and discuss what Change of Character signifies.

Change of Character in Bearish Trend

In a downtrend, Change of Character CHoCH is an important event that signifies a violation of a bearish trend.

CHoCH is confirmed when the price breaks and closes above the level of the last lower high.

Above, is a text book Change of Character model in a bearish trend.

For the newbie traders, such a price action provides a strong signal to buy while it fact it is NOT.

One crucial thing is missing in this model to confirm a bullish reversal.

According to basic trend analysis rules, we say that the market trend is bullish if the price forms a bullish impulse, retraces and sets a Higher Low HH, forms a new bullish impulse with a new Higher High HH.

Only then, we can say that the market is trading in up trend.

CHoCH model above confirms a bearish trend violation BUT it does not confirm a trend change.

Such a model may easily signify a deeper correction.

Look what happened with GBPNZD forex pair.

Though the price formed a confirmed bearish CHoCH, it was a false signal and just an extended correction.

That's a perfect bullish reversal model.

It combines CHoCH and conditions for a bullish trend.

Such a union is extremely accurate in predicting up movements.

Examine a price action on USDJPY.

Not only the price formed a confirmed CHoCH but also we see a start of a new bullish trend.

Change of Character in Bullish Trend

In an uptrend, Change of Character CHoCH is a significant event that signifies a violation of a bullish trend.

CHoCH is confirmed when the price breaks and closes below the level of the last higher low.

Above is a typical model of a bearish CHoCH.

For many traders, that is the signal to open short.

However, it is not that accurate and one important component is missing there.

According to basic price action rules, the market trend is bearish

if the price forms at least 2 bearish impulses with Lower Lows LL and a pullback between them with a Lower High LH.

Only when these 3 conditions are met, a bearish trend is confirmed.

Perfect bearish Change of Character model should include both CHoCH and a bearish trend price action. That will confirm a violation of a bullish trend and start of a new bearish trend.

EURCAD has a very strong potential to continue falling:

not only we see a valid bearish Change of Character but also

a start of a new bearish trend based on a price action.

Next time when you identify CHoCH on forex market, make sure that you check the preceding price action. It will help you to more accurate assess reversal probabilities and make a wiser trading decision.