A break of structure (BOS) is a candle close beyond the last swing in the direction of the trend: in an uptrend, a close above the last higher high. A change of character (CHoCH) is the first close beyond the protected swing against the trend: in an uptrend, a close below the protected low. A BOS says the trend is still running, and a CHoCH is the first sign it may be ending.
What you will learn
- How to label each break on a chart as a BOS or a CHoCH
- Why a candle body has to close beyond the level, and a wick does not count
- How to confirm a CHoCH before you trade it
- How to plan a stop and a position size from a CHoCH on a $10K Classic account
BOS: the trend continues
Carry on from the EUR/USD example in lesson 1. The four-hour structure is bullish, the last high is 1.0942 and the protected low is 1.0858.
- A four-hour candle closes at 1.0956, above 1.0942. That is a BOS. The 1.0890 low produced it, so 1.0890 is now the protected low.
- Price rises to 1.0988, pulls back to 1.0931 and then closes at 1.0996, above 1.0988. That is another BOS, and the protected low moves up to 1.0931.
- Price makes a new high at 1.1012.
Each BOS raises the level the trend has to hold. A trader following the trend waits for a pullback after each one, because the new protected low gives a clear place for the stop.
CHoCH: the first break against the trend
From the 1.1012 high, price drops and a four-hour candle closes at 1.0924. That is below the protected low of 1.0931, so it is a CHoCH: the first time in this trend that price has closed through the low it needed to hold.
Which level breaks decides the label:
- A close below an ordinary low inside a pullback is an internal break. The trend is still bullish.
- A close below the protected low, on the timeframe you use for direction, is a CHoCH. Your bullish bias is gone.
ICT traders often call a CHoCH made by a large, fast candle a market structure shift (MSS). The candle's size matters because a slow drift through a low tells you much less about sellers than one candle that covers 50 pips in an hour.
A CHoCH ends the bullish bias without making the market bearish yet. For that you need the next step of a downtrend: a lower high, then a close below the low that the CHoCH leg made. Plenty of CHoCHs lead to a sideways range instead.
Judge the break on the candle close
Draw the level from the swing, then judge the break with the candle body on the same timeframe.
Suppose a four-hour candle had traded down to 1.0922, nine pips below the protected low of 1.0931, and then closed at 1.0940. The wick went through the level and the close came back above it. Stops below 1.0931 were filled, and buyers took price straight back up. Lesson 3 treats this as a sweep of liquidity, which often comes just before the trend carries on.
Three rules keep your reading consistent:
- Use the close on the timeframe where you marked the swing. A five-minute close below a four-hour low only tells you something about the five-minute chart.
- A close one pip beyond the level counts, but a margin that small gives more false breaks. Some traders require a close a set number of pips beyond the level. Choose one rule and keep it.
- Waiting for the close costs you price. In the example, the CHoCH closed 7 pips below the level. A trader who sold the first touch of 1.0931 got a better price, but would also have sold every wick that came back.
Trade a confirmed CHoCH on a $10K Classic account
After the CHoCH close at 1.0924, price falls to 1.0902 and then pulls back to 1.0950. On the one-hour chart, a candle then closes at 1.0938, below the last internal low of that pullback. Internal structure now agrees with the CHoCH, and that is your confirmation.
- Sell at 1.0938.
- Put the stop 10 pips above the pullback high of 1.0950, at 1.0960. That is 22 pips of risk.
- Set the target just above the 1.0890 swing low, at 1.0895. That is 43 pips away, a little under twice the risk.
On a $10,000 Classic account the daily loss limit is $500, and the maximum loss sets a floor of $9,000. Risk 0.5% of the starting balance, which is $50, and use $10 a pip for one lot of EUR/USD.
- Size = 50 ÷ (22 × 10) = 0.227 lots, rounded down to 0.22 lots.
- Actual risk: 0.22 × $10 × 22 = $48.40.
- If the target fills: 0.22 × $10 × 43 = $94.60.
Compare that with trading every unconfirmed CHoCH. If you sell four wicks through protected lows in one day and each one turns back up, four losses of about $50 come to $200. That is 40% of the $500 daily limit used before you have taken the trade you were waiting for.
Size every position so one loss stays small explains the sizing formula step by step.
Check your understanding
The structure is bullish, the protected low is 1.2540 and the last high is 1.2610. A four-hour candle closes at 1.2622. Is that a BOS or a CHoCH?
A BOS. It is a close above the last high, in the direction of the trend. The higher low that produced it becomes the new protected low.
In the same structure, a four-hour candle trades down to 1.2531 and closes at 1.2548. Has the character changed?
No. Only the wick went below 1.2540, and the candle closed above it. Treat it as a possible sweep of the stops below the low until a body closes beneath 1.2540.
On a $10K Classic account you risk 0.5% with a 25-pip stop on EUR/USD. What size do you open?
$50 ÷ (25 × $10) = 0.20 lots. A full loss costs $50, a tenth of the $500 daily limit.
Key points
- A BOS is a close beyond the last swing in the trend's direction, and it moves the protected swing.
- A CHoCH is the first close beyond the protected swing against the trend. It ends your bias but does not yet make a new trend.
- Judge breaks on candle closes, on the timeframe where you marked the swing. A wick through a level is a possible sweep until a body closes beyond it.
- Wait for internal structure to agree with a CHoCH before you trade it, then size the trade from the stop distance.
Next lesson: Find stop clusters and tell a sweep from a breakout
All trading is simulated. Rewards are based on performance and are not guaranteed.