The building blocks.
- Uptrend: A series of Higher Highs (HH) and Higher Lows (HL).
- Downtrend: A series of Lower Lows (LL) and Lower Highs (LH).
- Ranging: Price fails to make new highs or lows, staying within a defined boundary.
Break of Structure (BOS).
A BOS confirms that the trend is healthy and continuing. In a bullish market, when price breaks above the previous Higher High, a new HH is formed. This confirms demand is still in control.
Traders look for entries at the 'discount' (the new Higher Low) after a BOS occurs, rather than chasing the breakout itself.
Change of Character (CHoCH).
CHoCH is the early warning system. In a bullish trend, if price fails to make a new HH and instead breaks below the previous Higher Low, the 'character' of the market has changed. It doesn't guarantee a reversal, but it tells you the trend is at least pausing.
For prop firm traders, a CHoCH is a signal to move stops to break-even or exit a portion of the position to protect the daily drawdown.
The multi-timeframe trap.
The most common mistake is trading a 1-minute CHoCH into a 4-hour supply zone. Always map your structure from the top down. If the Daily and 4-hour charts are bearish, a 5-minute bullish BOS is likely just a retracement (a trap).
At MixFunded, we encourage a patient, top-down approach. Our no-time-limit rule means you don't have to force trades on messy lower-timeframe structure just to hit a target.