Technical Analysis (Part 21) - Japanese Charts: Line Break

Monday, Sep 04 2017 by
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Technical Analysis Part 21  Japanese Charts Line Break

Renko charts, discussed in the previous article, should have given you a whole new perspective on how to analyse and trade chart data. In article 21, we are going to look at another form of Japanese chart that helps you to spot reversals! Calling the turn (reversals), when trading any financial market, is a notoriously difficult thing to achieve with any given consistency. There are thousands of different technical analysis tools and techniques that try to give you this edge. One of the best and most simple I’ve come across is the Line Break chart.

What is a line break?

The line break is a very useful Japanese style chart configuration that takes out a lot of the guesswork from calculating turning points in a chart. It works across all assets and most time frames. The Line Break chart, like its cousins the Renko chart and Point and Figure chart, ignores time and only updates when prices move by a certain criteria. In this article we will focus mainly on the 3 Line Break chart which is the most common and widely recognised version of the Line Break chart.

From the two daily charts below on the GBPUSD, notice on the 3 Line Break chart (right), how much easier it is to spot reversals in the price and how much ‘clearer’ the data looks over the traditional candlestick chart (left):

59ad15961c207T2.png

Setting up your 3 Line Break chart

It is a chart made up of vertical lines: one colour for up (bullish), the other for down (bearish). Prices continue in the same direction until the reversal criteria is met. When does a reversal occur? The rule is very simple. When the closing price exceeds the high or low of the prior three lines. Note, that the ‘lines’ are based on closing prices and not ranges of prices e.g. high/low. This style of charting works well in any time frame.

Trading using the 3 Line Break chart

Using 3 lines gives a better confirmation to the trend reversal. A bullish trend reversal occurs when three down lines form and a single up line breaks the high of these three lines. A bearish reversal occurs when three up lines form and a single down line breaks the low of these three lines.

Example: Gold 240 minute 3 Line Break Chart (

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Disclaimer:  

Commentaries, information, courses, content on this site or provided on any other form of social media by Stephen Hoad or THE STOP HUNTER Ltd and any other materials or services provided by Stephen Hoad or THE STOP HUNTER Ltd ARE NOT and DO NOT amount to financial or investment or trading advice upon which reliance should be placed and DO NOT fall under any matter regulated by the Financial Conduct Authority (FCA).

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About Stephen Hoad

Stephen Hoad

Stephen Hoad is the founder of The Stop Hunter and the resident Technical Strategist at Stockopedia.com. He has worked in the City of London for nearly twenty years at some of the top Investment Banks and Trading Houses. His career that has taken him from global risk management (front office, market, quantitative), to successful commodities options trader, to own account proprietary trader. His professional experience in the world of trading and risk management is vast and he has extensive knowledge of financial markets, especially in the fields of Commodities, FX and Equities. He has a strong quantitative background and is a qualified Technical Analyst. He also holds an MSc in Financial Markets & Derivatives and a BA (Hons) in Business & Economics. His career has taken him worldwide and he has lectured in London, the Far East and at Princeton, USA. He is an expert in technical analysis, systematic/automated trading, derivatives products, financial and quantitative theory, risk management and regulatory practices. He also has experience of dealing and trading with China. He is currently a member of GARP, PRMIA and the STA. Now trading from his offices in Canterbury, Kent, he undertakes consultancy work in the City and is a part-time University lecture teaching at Queen Mary, Kings College, LSE. Author of the book: #Trading Thought: Mind Medicine for Traders and Investors more »

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