Read the Open
Posted (ET)
Access
Free
Filed under
Course, Structure

The Map, lesson 2: Breaks and changes of character

How a break of structure differs from a change of character, and how a close decides which one you have.

A break of structure is a close beyond the last swing in the direction of the trend. A change of character is a close beyond the last swing against it, and it flips the trend.

H HL HH HL HH HL HH BOS BOS
A. Uptrend. Each close above the last swing high is a break of structure (BOS). Squares mark the closing bar.
LH LL LH LL HL CHoCH
B. Downtrend, then a close above the lower high that made the last low: a change of character (CHoCH). The trend flips up.

Rules

  1. Closes, not wicks. A wick through the level is a sweep, covered in lesson 3.
  2. Trend is a state: up or down. A break in its direction is a BOS. A break against it is a CHoCH, and the state flips.
  3. For a bullish change, break the lower high that led to the most recent low. Mirror it for bearish.
  4. One bar, one event. A bar can sweep a level or break it, never both.

What the evidence says

Most structure strategies enter on the change of character. Our structure model did, and tested out of sample on 15 markets it averaged about zero per trade. A CHoCH tells you where the trend view is wrong. It doesn’t time the trade.

Hypothetical results1, not actual trading. The full statement is at the end of this page.

Exercise

Mark the trend state on today’s 15-minute ES chart. Label every BOS and CHoCH with the time of the bar that closed through the level.

The pointA close through the last swing with the trend is a break of structure; against the trend it is a change of character.

Check yourself

  1. The trend is up. A wick goes above the last swing high, but the bar closes back below it. What is it?

    1. A break of structure, because price traded above the high
    2. A change of character, because the bar closed back down
    3. Neither: a wick through the level is a sweep, not a break
    Answer

    C. Closes, not wicks. Only a close beyond the swing is a break; a wick through the level is a sweep, covered in lesson 3.

  2. The trend is down. A bar closes above the lower high that led to the most recent low. What does that tell you?

    1. A change of character: the trend state flips to up
    2. A break of structure that confirms the downtrend
    3. Nothing yet: price has to make a new higher high first
    Answer

    A. A close against the trend through the lower high that led to the most recent low is a change of character, and the trend state flips.

  3. A clean change of character prints on your chart. Is that your entry?

    1. Yes: it is the entry most structure strategies use
    2. No: it shows where the trend view is wrong, not when to trade
    3. Only if the next bar also closes in the new direction
    Answer

    B. A CHoCH tells you where the trend view is wrong. It doesn’t time the trade.

Next: Sweeps: a level taken and given back

Education only. Nothing here is advice about your account.