In the ICT style, directional changes in price movement are identified using concepts like Change of Character (CHOCH), Market Structure Shift (MSS), and more.
CHOCH in ICT refers to a long-term shift in trend direction, which occurs when the last swing high or low is broken and a new structure forms in the opposite direction, thus altering the entire market trend.
What Is CHOCH in Trading?
The concept of CHOCH in trading often emerges with Smart Money entering the market, resulting in a significant reversal in trend direction.
Change of Character (CHOCH) refers to when the market shifts from a defined trend (bullish or bearish) to a different one. This transition usually reflects a change in market sentiment and trader behavior.
Bearish CHOCH
In a bullish trend, a CHOCH in trading occurs when the market shifts from forming HH & HL to LL & LH. This suggests that buyers have lost strength, and sellers are gaining control.
For example, if the price fails to make a new high and then drops below the previous low in an uptrend, a bearish CHOCH is likely underway. This point is usually accompanied by rising volume and a break of a key support level.
Bullish CHOCH
In a bearish trend, a CHOCH in ICT forms when the price transitions from LL & LH to HH & HL. This indicates a weakening of selling pressure and emerging buyer dominance.
A bullish CHOCH is often confirmed by the break of a major resistance level, increased volume, and a return to order block zones.
For instance, when the price transitions from forming higher highs and lower lows (HH & HL) to forming Lower Lows and lower Highs (LL & LH), it signals the appearance of a bearish CHOCH.
This concept is vital for identifying the end of the current trend and the beginning of a new one. A CHOCH goes beyond a mere structural shift—it reflects significant psychological changes in buyers, sellers, and overall market sentiment.
Pros and Cons of Using CHOCH in Trading
CHOCH in ICT is primarily used to analyze long-term market structure. Below is a table outlining the key advantages and disadvantages of using this concept:
Cons | Pros |
Possibility of false signals in ranging markets | Early detection of trend reversals |
Requires experience and practice for accurate identification | Applicable in all markets and timeframes |
Higher risk in lower timeframes due to noise | Improved risk management and reduction of unnecessary losses |
Needs confirmation with other tools | Highly compatible with other ICT concepts |
Long formation duration | Helps identify optimal entry points in the new trend |
How to Identify CHOCH in Trading?
The first step to identifying a CHOCH in trading is understanding the overall market structure and its price movement phases. Markets typically rotate through accumulation, uptrend, distribution, and downtrend, and CHOCH usually occurs at transitional points between these phases.
Key factors for detecting CHOCH include:
- Price behavior analysis: Identifying swing highs/lows and monitoring their changes;
- Support and resistance zones: Their break often signals a structural change;
- Volume analysis: Significant shifts in volume may confirm a CHOCH;
- Imbalance zones and Order Blocks: These areas often mark major entries/exits of significant capital and can act as signs of CHOCH.
Tips to Better Recognize CHOCH
For accurate CHOCH detection, consider the following:
- Apply Top-Down Analysis
- Analyze volume behavior during CHOCH formation
- Examine price action at support and resistance zones
- Use complementary tools such as indicators
Best Timeframe to Identify CHOCH
A Top-Down analysis approach is used to detect CHOCH in trading. The approach starts from a higher timeframe (4H, 1H, or 30M) to determine the trend direction.
- First, the trend and its swing highs/lows are identified on higher timeframes;
- Then, swing structures are validated in mid-level timeframes (1H or 30M);
- Finally, the break of structure is confirmed in lower timeframes (30M or 15M), depending on the trend direction.
CHOCH + FVG Trading Setup
The CHOCH concept is compatible with other ICT concepts. Combining it with Fair Value Gaps (FVG) creates a high-probability trading setup.
Steps to trade with CHOCH + FVG:
- Identify CHOCH in a higher timeframe (4H, 1H, or 30M);
CHOCH formation on 1H NASDAQ chart - Spot the FVG in a lower timeframe (30M or 15M);
FVG detection on 30M chart - The 50% zone of the FVG provides a precise entry point;
Entry point identified at the 50% mark of the FVG - Previous swing lows act as support zones and serve as profit targets;
- Stop-Loss can be Placed above the last high of the previous trend.
Conclusion
CHOCH in ICT occurs at the end of trends due to weakening buyer strength. After CHOCH forms, the trend structure transitions from bullish to bearish or vice versa.
Accurately identifying CHOCH requires thorough market structure and liquidity behavior analysis.
A well-detected CHOCH often marks a significant trend reversal and presents a high-quality entry point for profitable trades.
