SPX TREND

[attachment=6736:spx.jpg] where's my chart?? zippy, zippy

Edited by mss, 27 March 2008 - 03:32 PM.

MSS, What is this chart? I see it says "Daily Three Line Break". Is this something similar to a P and F chart? It only shows signifiant moves? I have never seen one like it. It does not look anything like $SPX cash. Thanks. SL

THREE LINE BREAK

Overview

Three Line Break charts display a series of vertical boxes ("lines") that are based on changes in prices. As with Kagi, Point & Figure, and Renko charts, Three Line Break charts ignore the passage of time.

The Three Line Break charting method is so-named because of the number of lines typically used.

Three Line Break charts were first brought to the United States by Steven Nison when he published the book, Beyond Candlesticks.

Interpretation

The following are the basic trading rules for a three-line break chart:

• Buy when a white line emerges after three adjacent black lines (a "white turnaround line").
• Sell when a black line appears after three adjacent white lines (a "black turnaround line").
• Avoid trading in "trendless" markets where the lines alternate between black and white.

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. 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 investor 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.

Steven Nison recommends using Three Line Break charts in conjunction with candlestick charts. He suggests using the Three Line Break chart to determine the prevailing trend and then using candlestick patterns to time your individual trades.

Example

The following illustration shows a Three Line Break and a bar chart of Apple Computer.





You can see that the number of break lines in a given month depend on the price change during the month. For example, June has many lines because the prices changed significantly whereas November only has two lines because prices were relatively flat.

Calculation

Line Break charts are always based on closing prices.

The general rules for calculating a Line Break chart are:

• If the price exceeds the previous line's high price, a new white line is drawn.
• If the price falls below the previous line's low price, a new black line is drawn.
• If the price does not rise above nor fall below the previous line, nothing is drawn.

In a Three Line Break chart, if rallies are strong enough to display three consecutive lines of the same color, then prices must reverse by the extreme price of the last three lines in order to create a new line:

• If a rally is powerful enough to form three consecutive white lines, then prices must fall below the lowest point of the last three white lines before a new black line is drawn.
• If a sell-off is powerful enough to form three consecutive black lines, then prices must rise above the highest point of the last three black lines before a new white line is drawn.

This is from MetaStock, Stock Charts has a slightly different explanition. Check them.
This style is good for a trend visual, but channel lines sometimes can be missleading. Abreak to the upside here would be very strong, IMO.
mss

MSS,

What is this chart? I see it says "Daily Three Line Break". Is this something similar to a P and F chart? It only shows signifiant moves? I have never seen one like it. It does not look anything like $SPX cash.

Thanks.

SL

From:
http://www.topgunsof...breakchart.html


"you get to see how LONG a new high or low has held and the longer it is the more significant the move will be in the opposite direction."
I.e. from the chart above, expect a very significant upside move. But as OP mentioned, we have to wait for reversal signal.

Edited by watchthemarkets, 27 March 2008 - 03:59 PM.

Thanks Guys. I read both! This is my first exposure to it...I am sure it will sink in more over time. I use stockcharts...I wonder if they have the ability to do this... SL

Thanks Guys. I read both! This is my first exposure to it...I am sure it will sink in more over time. I use stockcharts...I wonder if they have the ability to do this...

SL

yes, where you see indicator type(underneath periods: default = daily). Its default is set to candlesticks, simply pull down the menu and select three line break.

yes, where you see indicator type(underneath periods: default = daily). Its default is set to candlesticks, simply pull down the menu and select three line break.

I see it!

Cheers.

SL

This style is good for a trend visual, but channel lines sometimes can be missleading.

Is volume also misleading or can it be reliably used with these charts? Thanks!

This style is good for a trend visual, but channel lines sometimes can be missleading.

Is volume also misleading or can it be reliably used with these charts? Thanks!

Sorry, I cannot answer that question. I have never used volume with this type of chart. I use this type of chart ONLY when I am looking for a trend change. I find it a little better than P&F for trend change, but use P&F for S & R levels as well as other indicators. This type of chart takes out the small price moves that can fake you.
Best to you,
mss

Thanks mss. I agree. The trend changes are much better than with P&F charts. In fact, they're great! Thanks for bringing them to our attention.