Traders are always looking for ways to recognize market trends and direction. Many chart technicians use technical indicators to detect changing momentum, rising and falling trends and market volatility to determine price projections. A candle or bar chart is what is most often used to make trading decisions, however they seldom make it crystal clear when a stock has changed direction.
Three line break charts on the other hand usually help traders more accurately determine the current direction of the trend and alert them sooner when the trend has changed than do other methods (stochastics, moving average crossovers, etc). Three line break charts display a series of vertical boxes that are based on the closing prices. Every time there is a higher close a new green bar is created. When the price closes below the low of 3 green boxes the trend shifts to down and we start drawing red boxes. Every new closing low draws a new red box and so on. Three point break charts often can help a trader spot trend reversals quickly. There are many uses for 3 line break charts, you can use them for entries, exits, and make wonderful places to trail your stops to catch the majority of the move.
You can see an examples of trading using 3 line break charts below.
|Below is a traditional 15 min candle chart zoomed out to see 5 days worth of data along with a 20 period simple moving average.||Below is a 15 min Three Line Break chart with the same moving average.|
|Traditional Candle Chart||3 Point Break Chart|
|TopGun Software charting program is totally unique in that our 3 Line Break
indicator can be drawn on top of a normal candle or bar chart!
Most 3 line break charts do not have a time axis and you can not draw trend lines or use any sort of indicators such as the moving average you see below. In addition, with our charts 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. This tool is very useful for traders searching for stocks that are most likely to have a significant breakout in the afternoon trading session.
|TopGun Software's 3 Line Break Chart||Competitor's 3PB Chart|
|Above you will see a 5 min chart of the S&P emini on
January 12, 2005. What is interesting about this chart is that in
addition to the normal candles we also show you the Japanese 3 Line
Break levels also known as 3 Point Break. You can see that by
trading in the direction of the 3 Point Break it keeps you in the
direction of the trend and helps you get into the new trend direction
pretty early. The safest way to trade the 3 line break chart is to
find a pullback in the trend and enter there. On this day the 3
Line Break chart went negative pretty early in the day. Since it
had fallen a few S&P points the safest trade was to wait for it to rally
back up and then get short. You could have caught up to 6 points
by doing this. The market had sold off pretty strongly and
slightly after 11am the 3 line break chart went long and the market
rallied up about 6 points from the low. It had you go short again
after 12:30pm and you would have made about 2 points on that trade.
The last move up it had you long around 2:15 and if you missed the first
entry you could have caught it on the first pullback. This trade
was also good for about 4+ points.
As you can see trading stocks or futures using the 3 line break chart can be made more intuitive and gets you into trades much sooner than traditional methods such as moving average crossovers. Plus by using the 3 line break charts available only on TopGun Software you can add your regular indicators to the chart as well. The indicator below shows the volume flowing into stocks up/down on the day in the NYSE. It's a great confirming indicator and you can see a lot more selling was going on earlier in the day and some buying came in at the lows which pushed us higher. Without this tool you really can't see inside the market nearly as well.