The 21-year-old from Toronto, the two-time defending champion in the event, trails Daisuke Takahashi of Japan after Friday's short program.
Canada's Olympic ice dance champions Tessa Virtue and Scott Moir also sit second behind American rivals Meryl Davis and Charlie White after the short dance.
In pairs, Meagan Duhamel Lively, Ont., and Eric Radford of Balmertown, Ont., are fourth and Kirsten Moore-Towers of St. Catharines, Ont., and Dylan Moscovitch of Toronto sit fifth.
Chan opened with a huge quad toe loop, but opted out of the triple on what was supposed to be a quad-triple combination.
"I had to kind of think on my feet. The last triple jump did not have enough speed going into it and was a bit too far down the ice. But I stayed on my feet and I happy with my performance," Chan said. "I think this is where I want to be. Three points is not a lot in men's singles. . . It is really easy to make up."
Chan said the highlight of his program was a "beautiful triple Axel. . . It's the only time I've done such a big triple Axel in my program in my life."
Japan's Mao Asada led a close women's event, just ahead of American Ashley Wagner and Akiko Suzuki of Japan.
Takahashi, the only one of the six finalists not to win a gold in the six regular Grand Prix competitions, reeled off an opening quad toe loop, a triple Lutz-triple toe combination and a triple Axel.
"For me, it's the first time I did a quad in the short program for this season," Takahashi said. "I really enjoyed to skate today."
Takahashi, skating to what he called "my image of rock 'n' roll," prevailed on technique, outdoing Chan by 4 1/2 points. But Chan gained back some of that on a superior program content score, accompanied by a Rachmaninoff elegy.
Yuzuru Hanyu of Japan was third.
In ice dance, the compulsory part of this season's short program is the Yankee polka, which White said played to the couple's strengths because "we like to take advantage of quick feet in skating."
Virtue, from London, Ont., and Moir, from Ilderton, Ont., who are two points behind the leaders going into Saturday's free dance, had expressed displeasure with the Yankee polka when it was announced. But they made peace with the steps in a program — "The Waltz Goes On" written by actor Anthony Hopkins — that begins on a dark note, then progresses to lighter spirits.
"I think pretty clearly in the beginning of the piece there are certainly minor tones in the music that we wanted to take upon for my character," Virtue said. "We have played a lot of different storylines, but there is certainly something very upsetting and emotionally disturbed about my character and Scott has been trying to cheer me up, and as the program progresses, through the polka, it starts to heal through the love of dance and it kind of becomes a love story."
Nathalie Pechalat and Fabian Bourzat of France were third.
Asada opened her program to variations on "I Got Rhythm" with a strong double Axel, followed soon by a fast triple flip-double loop.
The program was designed to "invigorate everybody who sees it, including me," Asada said. "I'm always skating it with a smile on my face."
Wagner opened with a big triple flip, followed in combination with a double toeloop. Like Asada, she didn't try a triple-triple combination, saying her execution of it has been sporadic.
"I prefer to go out on the ice and perform a program I'm 100 per cent confident with," Wagner said. "It's almost better to skate a clean, lower-risk short program."
Asada was only 0.07 points ahead of Wagner on technical elements and 0.45 on program components.
Other skaters wanted to do triple-triples, but only third-place Akiko Suzuki fully succeeded, remaining in contention for gold less than two points behind Asada.
In pairs, Russia is in the top two spots with Tatiana Volosozhar and Maim Trankov in the lead at 73.46 followed by Vera Bazarova and Yuri Larionov in second at 70.14. Qing Pang and Jian Tong of China are third at 64.74.
Duhamel and Radford are at 64.20 while Moore-Towers and Moscovitch are at 60.95.
"In terms of our presentation and interpretation of the music everything was a lot better than at our events earlier this season," Duhamel said. "We feel confident about the free in general. We know a strong skate could push us up in the standings."
The competition is a test event for the Iceberg Arena, which will host figure skating and short-track speedskating at the 2014 Olympics.