Three-Line Break Charts and Reversal Signals
Summary
The document explains three-line break, also called linear reversal, charting. The chart consists of vertical boxes whose direction and formation depend on closing-price movement. It ignores both elapsed time and trading volume. Reversal sensitivity is controlled by the number of existing lines that price must break before a box in the opposite direction is drawn, so the threshold responds to price behavior rather than a separately fixed reversal amount.
A basic interpretation is to buy when a blue box follows a run of red boxes and sell when a red box follows blue boxes. The author recommends experimenting with the method alongside other tools and identifying patterns suited to the instrument or trader. No market, parameter choice, backtest, or performance evidence is provided, so the color-change rule should be treated as a chart-reading heuristic rather than a validated standalone strategy.
Key ideas
- Three-line break charts use closing prices to draw directional boxes.
- The chart does not encode time intervals or volume.
- A reversal appears when price breaks a configurable number of prior lines.
- Color changes after a run of opposite-colored boxes provide basic entry cues.
- The document offers no empirical validation for the standalone signals.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.