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Understanding Change of Character as a Reversal Pattern in the

Forex Market

Introduction to Change of Character (CHoCH:

A "change of character" in trading refers to a noticeable shift in the behavior of a financial instrument or
market. This change is often reflected in alterations to key technical and fundamental factors, and
traders use it as a signal to reassess their analysis and potentially adjust their strategies. Recognizing a
change of character can be valuable for identifying shifts in trend direction and understanding the
dynamics of a changing market. Here's how it works:

Identification of Established Trend:

Traders typically begin by identifying the existing trend. This could be an uptrend, downtrend, or a
sideways (range-bound) trend. Recognizing the prevailing trend is essential before assessing any
potential change in character.

Observation of Key Technical Levels:

Traders focus on critical technical levels such as support and resistance. These levels help establish the
boundaries within which the price has been moving. A change of character may involve the price
breaking through these levels.

Volume Analysis:

Changes in trading volume can signal a change of character. An increase in volume during a price move
suggests stronger conviction and may indicate the beginning of a new trend or the acceleration of an
existing one.

Pattern Recognition:

Traders often use chart patterns (e.g., head and shoulders, double tops/bottoms) to identify potential
changes in trend direction. A pattern failure or a breakout from a well-established pattern can signal a
change of character.

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Understanding a change of character helps traders avoid being caught on the wrong side of the market.
It allows them to adapt to evolving conditions and positions them to capitalize on emerging trends.
Traders need to exercise caution, use proper risk management, and verify signals through multiple
indicators or tools before making significant trading decisions based on a perceived change of character.

Change of character is a trend reversal pattern. It occurs when the LL breaks above the last Lower
High.

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