When the highest value of current price is above maximum value of three black lines, the reversal white line should be laid in the next column. Example B When the lowest value of current price is below minimal value of three black lines, the black line should be laid in the next column. The low of these two is what decides the reversal point. Three Line Break charts show a series of vertical white and black lines. Like their other Japanese cousins Kagi and Renko , Three Line Break charts filter out the noise by focusing exclusively on price changes. Third line If maximum point of the line is above maximal point of previous white lines, the white line should be laid.
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They are distinctive because they only show significant price moves. This is based on the idea that the closing price is the most important price of the day. In this system, each bar is referred to as a line.
A long reversal can only occur when the market has closed above the high of the previous 3 lines. In the example below a short reversal line breaks below the preceding 3 lines. A new line is always significant because we have a new high or low. This means that the chart is less cluttered. There is more information on the candlestick chart, but this can sometimes be distracting. The simplest way to trade using 3 line break charts, is to wait until the market has made at least 3 lines in the same direction.
Then wait until a reversal line has formed and enter in the direction of the reversal. This is the start of a new potential trend and we can get in nice and early. It is easy to combine 3 line break charts with other technical indicators. For example, a moving average can be used to define the trend. Then a 3 line break can be used to enter in the direction of the trend.
Counter trend traders can combine 3 line break charts with momentum indicators to identify good reversal opportunities. For example, the stochastic oscillator can be used to identify overbought and oversold areas. Another common way to use 3 line break charts is to combine them with Japanese candlestick patterns. Reversal candles and patterns such as dojis, bullish engulfing patterns and tweezer bottoms. The 3 line break charts can be used to identify the dominant trend and then the candlesticks are used to time trade entries.
I was interested in testing how profitable a simple 3 line break chart strategy was on historical price data. So I set up a backtest using a Tradinformed Excel spreadsheet. You can view the latest models in the Tradinformed Shop. Get a Tradinformed Backtest Model now and see how much better your trading can be. Prices moved to a new low on June 8th to justify a new black line. This downtrend continued until the closing price exceeded the high of the prior three black lines 2.
This 3-Line Break signaled the start of a new uptrend on June 21st. Prices traded within the range of this white line until June 28th 3.
On June 28th, five trading days later, prices exceeded this high to justify a new white line. Prices continued higher the next six trading days as new white lines were added each day. The uptrend reversed when prices moved below the low of the prior three white lines 4. This 3-Line Break justified a new black line to signal the start of a downtrend. Three Line Break Charts produce clear reaction highs and lows upon which to base resistance and support.
Chart analysis works the same way as on a bar or candlestick chart. The example below shows Constellation Energy CEG with a clear resistance zone marked by three reaction highs. The stock broke resistance with a surge in early April and continued much higher. Also, notice that a falling flag or channel formed in February.
Classic patterns are also viable on Three Line Break charts. The stock broke the lower trend line and support with a sharp decline in early May. Like their other Japanese cousins Kagi and Renko , Three Line Break charts filter out the noise by focusing exclusively on price changes.
The lines do not change unless price changes by a specific amount. This range can vary quite a bit. The ability to filter noise makes these charts especially useful to determine the underlying trend. It is easy to spot important highs and lows. Armed with this information, chartists can identify uptrends with higher highs and higher lows or downtrends with lower lows and lower highs.
As with all charting techniques, chartists should employ other technical analysis tools to confirm or refute their findings on Three Line Break charts. Click here for a live example. As the name implies, this book goes beyond candlesticks to show chartists other technical analysis techniques from the Far East. Nison devotes an entire chapter to Three Line Break charts. Nison also covers Renko charts, Kagi charts and explains how Japanese traders use moving averages.
A trading system based on line break charts must must have all entries and exits based on the close or open of a line. As mentioned earlier, the two key values of a line break chart are the line break number and the underlying time interval. Apr 14, · MTF TMA - By analyzing the interrelationship of the 3 TMAs, you can anticipate the next move of the market ATR Optimize - High Atr pairs (Over 70) and another for Low Atr pairs (Under 70) Changes to the Extreme TMA System - March 18, H1 and H4 bands coincide - + pips trades. Dashboard M15, H1 . Jul 12, · Renko line in the sand Trading Systems. Forex Factory.