Q:

Error: Function ISCHANGED may not be used in this type of formula

I am implementing formula 
AND(ISCHANGED(OwnerId),$Profile.Name <> "System Administrator",RecordType.Name = "")

on formula field but every time this is giving me error .

Error: Function ISCHANGED may not be used in this type of formula

People saying it will be applied on workflow rules , But I am not able to see where to apply formula in rules.
Please let me know what I am doing wrong

A:

You can only use ISCHANGED in the following cases:

Assignment rules
Validation rules
Field updates
Workflow rules if the evaluation criteria is set to Evaluate the rule when a record is: created, and every time it’s edited .
Formula criteria for executing actions in the Process Builder.

This is mentioned in the documentation.
To use ISCHANGED in a Workflow Rule, use the "when the following formula evaluates to true" option.

