Why Your CHoCH Keeps Failing (8-Minute Fix)

There is one mistake you're making when drawing a change of character that is costing you trades and making your SMC trading a lot more difficult than it has to be. So in this video I'm going to show you one simple tip that is going to allow you to easily differentiate between a legitimate change of character and one that is trapping you into a losing trade. So my name is Justin Bennett, full-time trader and founder of Daily Price Action. As always, all of this is my opinion only and not financial advice. So let's look at the EURUSD here on the one hour time frame. So what I want to show you today is this change of character that occurred on this chart that looked legitimate, okay, and caught probably a lot of traders offside, but it was not legitimate. And I'm going to show you why. Okay, so first of all, let's run through this chart right here and plot out our first break of structure, because this is how we find the high that actually triggered the change of character. So this low right here, you can see that first of all, if we go back here, you can see that we do have a downtrend from this market. We have a BOS back here. We had the leg down, we had this low. Okay, so this low that formed right here, we had a pretty decent retrace against this. So the moment that the market started to move away from this low, we know that this low down here is something significant. So therefore, what we can do is we can snap a level right here to the low, draw this over here, and this is our BOS. Okay, so this is a break of structure below that low, showing that sellers remain in control. Now, once we have this low, okay, so once we have this portion right over here, once we get the close below, this gives us our BOS. Now, what we want to do here is find the external high. And we do that by tracking this back, finding the highest point within this BOS. Okay, so from this low over here, down here to this point where we broke below. So the highest point within this is clearly this one right back here. So this becomes our new external high, this is the high that in this case, sellers have to protect because we are in a downtrend. In other words, this is the high right now, following this BOS, that if we got to close above, that would be a change of character. Now, if we take this high up here and do the exact same thing with a horizontal line, okay, so snap it right here to the high. And I'm going to hold down shift, this is just a simple trend line, guys, if you're in trading view, this is an easy way to do it, hold down shift, drag it across over here to this close. So this right here was our bullish change of character. Okay, so simple enough, you can see where we did get the close above this, and it wasn't just one or two pips. It was pretty convincing. Now, this ultimately failed. Okay, so the question that we have to ask ourselves is why did this fail? Why did this right here, this change of character, not trigger a higher low down here, right and a reversal of this downtrend? And the answer to that is actually very, very simple. And it all comes back to this high. Okay, so this high is the reason that this failed. And by the way, we did talk about this in discord. In fact, when this happened, I told members in discord to be careful of this. Because of this reason I'm about to show you furthermore, the DX y had not confirmed this. Now, if you want to gain access to that and also get a free SMC course, check out the link right here on the screen, that's going to be a free SMC course that shows you exactly how I trade SMC. And then beyond that, you will have a chance to join us in discord for my help every day, Monday through Friday. Alright, so let's look at this high right back here. Now, the issue with this, and I say this all the time, but it is the one thing that will help you so much in your trade. And if you zoom out and look left, because this high right here is only relevant in the context of this price leg. Okay, because again, we know that we had a break of structure back here, right, we had a continuation of this back here. And then we had this low form. So basically, the way this looks is from this BOS, our external high with this BOS was this one up here. Now, this was our external low, this is the high in question. So what we can do here is we can take our fibs from this high right up here. So this external high from the last BOS, again, zoom out and look left, that's going to help you so much. If you look here at this high down here to the low, if we draw our fibs, I'm going to put up my settings here. So you guys can copy this if you want. These are the fib settings I have for this tool. It's basically a way for me to easily identify discount premium and optimal trade entry. And so with this, what you can see here is that this is our 50% line, everything down here in red is considered discount. Okay, so within a downtrend, first of all, we want to shorten premium and everything below the 50% is considered a shallow retracement. So what you'll notice here is that this high right here was still well within discount, this red window. So we never got the market moving up here in this area and then given us the BOS. So that right there is the key guys, because if you're using this right here as your protected high, in order to identify this change of character, you have to consider the fact that what you're saying is that this high right here, okay, within this downtrend, that this high is the last stand for sellers. Okay, but when you consider that we have all of this up here, right, it just doesn't make sense, right? Why would this be the last stand for sellers when we're still in discount, we haven't come up here into premium, nor have we even completely mitigated this imbalance, right. So if we look back here on this drop specifically, okay, what you'll notice is that we did have the displacement. So we went sideways here, we had a displacement out of this, and this high right here only mitigated part of that. So if I take this line and drag it over, just for reference, right, you can see where we did mitigate basically from here down, okay. But you can see this up here was left untouched, it was completely unmitigated, until we got this high over here. But the root issue here is still the fact that within this price leg, okay, within this very aggressive price leg, this pullback right here, this retrace was very shallow. So treating this as a protected high, that would signal a shift in this overall trend, right, this has been a trend, a downtrend now, for over a month. So you consider again, price like down, right, this is your high, it makes no sense to use this as your high to where if you get buyers taking it out, that all of a sudden, it's going to reverse this downtrend. Okay, when you consider the fact that again, external high, external low, look at where we are, we're still in discount, we're still well below the 50%. We haven't even crossed that 50% mark. Okay, so just to kind of reinforce this, I want to show you something, I just want to draw this out and show you what would have been different. Okay, so if we take this price leg over here, so what I'm going to do is I'm going to assume that the price like I'm about to draw is this drop back here, okay, this very aggressive, impulsive move. So if we had the market doing this, right, and then we had the retrace up here into this area, then we had the BOS, and then we had the change of character, that would be different. Okay, so in other words, if this down here is our BOS, okay, so BOS down here, breakup structure, we then have the market given us that change of character above this high being this is our external high, this would be completely different. And the reason is that you can clearly see that off of this high up here, if we drag this down, right, you can see that in this case, in this example, we would have been well within premium, okay, so above the 50% line also in that OTE area, to the point where once we get this BOS, and then buyers displace and take out this high, that right there, guys is much more convincing that a bottom is in for this market. Now, when you compare it to again, this back here, right, we have this leg lower, we had this small retrace up, we had our BOS, and then we had the market take out this high, okay. So you consider the difference here, right? Again, back here, we were well within discount below the 50%. Over here, we were well in premium. So in this case, using this up here as your high, that again, if buyers were to take this out, that could be a larger ship for this market. In this case, it made a lot of sense because of where this high was relative to this price leg. Over here, again, using this high relative to this price leg, given where it was within discount made absolutely no sense. Okay, so just always remember to zoom out, look left, look at the last price leg and where the higher low is relative to that price leg. So I hope this helped. Keep it locked in here, subscribe to the channel. Also check out this free SMC course right here on the screen. Until next time, trade well out there. I will talk to you again tomorrow.