A change of character (CHoCH) is the first break against the prevailing structure. In an uptrend, it is a close below the most recent higher low. In a downtrend, it is a close above the most recent lower high.
Why it matters
In an uptrend, every pullback has held above the previous low. When price closes below the last higher low, the pattern of higher lows has just stopped. That is the market behaving differently from how it has been behaving, hence "change of character".
A warning, not a verdict
A CHoCH does not mean the trend has reversed. After one, price may do any of the following:
- Continue to fall and form a new downtrend.
- Fall briefly and then recover, resuming the old uptrend.
- Turn into a range.
At the moment of the CHoCH you do not know which. What you know is that the evidence for "uptrend intact" is weaker than it was a moment ago.
BOS and CHoCH, together
They are two sides of the same idea. A break in the direction of the trend (BOS) supports continuation. A break against it (CHoCH) puts continuation in doubt. Many traders wait for a CHoCH followed by a BOS in the new direction as stronger evidence of a real shift.