b n c h c you might have heard these terms thrown around among others and seen it used in their trading but how exactly can we use it in our trading in this simplified guide we will teach you all about the break of structure and change of character the first thing to understand is what a break of structure actually is whenever we have a trending Market it will consistently make series of higher highs and higher lows or series of lower lows and lower highs a break of structure is simply whenever price makes a new structure
that aligns with the current trend for example right here we can see that price has broken past this swing high and it's created a new higher high this is considered a break of structure because the market has broken to a new high now look at this swing right here price has broken past the swing high and made a new higher high so once again that's a break of structure however as time passes we can see that the market has broken past this swing low for the first time but this is not a break of structure
instead we have our first change of character because price has shifted from a bullish character to a bearish character basically it implies a change in Trend and it is the first sign of potential reversal now from this point it can sometimes still continue on making higher highs because they can be confused with liquidity grabs that's why usually when you have a change of character you want to wait for another break of structure for confirmation and we'll get that break of structure once price breaks to a new high or low after the change of character so
let's see what this looks like in real trading on this chart we can see that the market was previously making lower highs and lower lows so it was downtrending or bearish however at one point it failed to make a lower low and instead made a higher low it then broke past our swing High signaling our first change of character usually I'll wait for another break of structure just to be safe and for additional confirmation and here it did just that putting in another higher high you could look to enter on this newly created fair value
Gap with your stop loss at below and simply targeting resistance levels higher if I've used the word price higher high and lower low too many times in this explanation and you're a little confused there is an indicator that can do this accurately for you it's going to be a great tool for Learning and once you've got the hang of it you'll probably go out on your own so to make it easy go to tradingview.com and in the indicators tab search for Market structure CH H make sure it's the one by Lux algo they make the
best stuff when you use this indicator your chart will automatically start displaying these Market structure labels taking a lot of the work out of it for you putting this indicator to the test we can see that the market is consistently hitting higher highs and higher lows meaning it's uptrending and bullish each new high that it's put in is acting as a break of structure now look right here the market has broken below this low this signals that we have our first bearish chain of character now the reversal isn't confirmed until we get a second lower
low so when price breaks below again and in this example we got just that this chart's starting to look more bearish a pro tip is to look for areas of resistance if you're looking to enter a short position anything really works for example you could use this horizontal level a fibber retracement a fair value Gap it's really up to you but for this one we're going to use the OT or the optimal trade entry to enter this short setting our stop loss just above the high we're going to aim for a 3 to1 risk to
reward ratio by simply incorporating the break of structure and change of character to your trading you'll better be able to anticipate price reversal which is going to lead to better trades over time so if you found this video helpful I ask that you share it with someone who might get some value from IT smash the like button subscribe and comment in the video below what topics you'd like to see covered next in our free trading course [Music]
