Technicians are always looking for ways to recognize market direction and market trends.
Mostly technicians use technical indicators to detect signs of momentum shift, rising/falling trends and market volatility for price projections. A price chart gives the visual display of the underlying strength and weakness
of a market. A chart display coupled with trend-indicators, momentum indicators with
support and resistance levels are essential in any technician’s arsenal.
Three-Line Break charts (3LPB) display a series of vertical boxes that are based on changes in prices.
The 3LPB method entirely dispenses with the recording of the volume sales and time data.
The other major charting techniques like Point & Figure, Kagi and Renko Charts also ignore the passage of time and volume.
As Steve Nison describes in his “Beyond Candlesticks” book, “The three-line break chart is a more subtle-form of point and figure charts where reversals are decided by the market and not by the arbitrary rules. That means we can gear it to the strength and dynamism of the market”.
Why Chart Analysis?
The understanding of the effect of supply and demand on any market is necessary for successful investing. When demand is greater than supply, prices move upward. Should supply be greater than demand,
the prices are forced downward. When demand has absorbed all the supply at any given price, it
will begin to absorb the supply available at the next higher price at which offerings are available.
As the demand decreases, prices correspondingly increase. Prices recede as a result of absence of
demand or an oversupply.
The fluctuations of price changes, when plotted by means of the principles of any charting
techniques like Bar Charts, Candlesticks, Kagi or Point and Figure, will more accurately indicate
the technical condition, the relationship of supply and demand, than any other known method, which can be used for the purpose.
An Example of 3LPB Chart
Three-Line Break Charts defines the underlying trend and considered as an adjunct to the
candlestick charts. A basic understanding of “3LPB” is when there are three white successive
candles, the major trend is up and when there are three black successive candles, the major trend is
down. The major reversal signals (based on the “3LPB” technique) are given when the turnaround
lines (white to black or black to white) are formed AFTER CONSECUTIVE 3 BLACK or WHITE CANDLES.
