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Three Line Break charts display a series of vertical boxes ("lines") that are based on changes in prices. It ignores the passage of time. The Three Line Break charting method is so-named because of the number of lines typically used. The three line break chart is similar in concept to point and figure charts. The decision criteria for
determining "reversals" are somewhat different. The three-line break chart looks like a series of
rising and falling lines of varying heights. Each new line, like the X's and O's of a point and figure
chart, occupies a new column. Using closing prices (or highs and lows), a new rising line is
drawn if the previous high is exceeded. A new falling line is drawn if the price hits a new low. The term "three line break" comes from the criterion that the price has to break the high or low of
the previous three lines in order to reverse and create a line of the opposite color. The Three
Line Break Charts are actually Any Line Break Charts. They are not limited to just a three line
reversal. You can create Two Line Break Charts, or even Eighteen Line Break Charts, if you
wish The following are the basic trading rules for a three-line break chart:
Line Break charts are always based on closing prices. The general rules for calculating a Line
Break chart are:
Use An advantage of Three Line Break charts is that there is no arbitrary fixed reversal amount. It is
the price action, which gives the indication of a reversal. It is use to determine the prevailing
trend. The disadvantage of Three Line Break charts is that the signals are generated after the new
trend is well under way. However, many traders are willing to accept the late signals in exchange
for calling major trends. You can adjust the sensitivity of the reversal criteria by changing the number of lines in the
break. For example, short-term traders might use two-line breaks to get more reversals while a
longer-term trader might use four-line or even 10-line breaks to reduce the number of reversals.
The Three Line Break is the most popular in Japan. Three Line Break chart focus on price, eliminate much of market noise & identify trend more
clearly. Combined with candle signals, they can be the basis of an effective trading strategy  |