Supplement candlestick charts with Line Break
I’ve done a number of articles in the past with alternative chart styles/forms. Renko is the one I have used the most. Today, I want to discuss another type of chart style: Line Break. This is a fantastic tool to have in your trading tool box because it can assist in helping you find where a change in trend will happen as well as what the price area will be.
Line Break may look a little odd and even random. Big bar, tiny bar, little bar, huge bar. Just so many many various bars of different sizes that it looks like it doesn’t make sense. However, this is probably one of the easiest charts to use. There are only a couple rules we need to know. Line Break charts are sometimes called 3-Line-Break in some platforms, only TradingView they are just called Line Break and TradingView’s Line Breaks do default to a 3 Line Break.
- The close of price is the only thing that matters and it is the always the highest/lowest. In other words, no wicks.
- A green bar will only paint (appear) when price closes above the three previous closes.
- A red bar will only paint (appear) when price closes below the 3 previous closes.
Below are two examples of how the bars on a Line Break chart are formed and the conditions for a bar to paint.
How to implement into your own trading.
Line Break charts should not be used as a form of charting for finding an entry, regular Japanese candlestick charts are better and more precise for that. Line Break charts will tell you where the entry area should be and can give you a more precise area to target with candlestick charts. Let’s use the current price action on Ethereum’s chart as an example.
Looking at the past 3 bars, we can see that the area we need to close above in order to paint a new green bar (and a large one) is the $723 value area. Another thing to consider: when a change in color of a bar happens, and it is a significantly large bar, that is a very strong signal of a trend change.