Chapter 2. Conventional Analysis on Line-break charts
Before we discuss the Line-break chart patterns. Let us explore the possibilities of applying conventional tools of Technical analysis in the Line-break charts.
The popular price patterns such as Head and Shoulders, Cup and Handle, expanding formations, Triangle, Rounding patterns are also applicable and valid in Line-break charts as well. The key difference however is that these patterns on the Line-break charts are price patterns minus the time element. The change in reversal value enables us to vary the magnitude of these formations.
See the chart below of Reliance showing bullish breakout pattern. It seems like Inverted H&S or Cup-handle pattern.
Below is Line-break chart of Apollo Hospital.
Point B in above chart is bullish trend line breakout followed after Double-bottom pattern at point A. Pattern C is bullish triangle breakout and Pattern D is a bullish trend line plotted from bottoms.
Below is a chart of BHEL showing the patterns on the Three Line break chart.
Pattern A and B are bearish trend line breakout. Pattern B is also a pattern of convergence. Pattern C is expanding triangle pattern.
Traditional tools such as price patterns, trend lines, channel lines, support-resistance patterns can be seen on the Line-break chart as well. I am keeping the discussion short because explanation on these concepts is easily available. Important point is that you should know that they can be analysed on the Line-break charts as well and their nature is different.
Have a look at Candlestick chart of HDFC shown below.
Observe the marking on the chart. Downtrend is followed by Double-bottom and consolidation. Observe the behaviour of trend lines on the chart. Observe the small consolidation happened over multiple candles shown in circle A.
Below is a Three-Line break chart of HDFC for the same period.
Observe same patterns and behaviour of trend line on the above chart. Downtrend followed by double-bottom. Price pattern is clearly visible on the chart. The consolidation seen on candlestick chart is not visible on this chart. Observe the consolidation in circle A. The price pattern over multiple candles were series of narrow lines trading around same level.
Is it that Line-break chart is better than the candlestick charts? No, they are different. Observe their behaviour in the same environment. The patterns in candlestick can be useful if you know overall price pattern shown by Line break charts. Are they better than other noiseless charts? No, all these charts are different, and they have a few unique properties.
For example, in the smooth downtrend seen on the above chart, bullish candlestick patterns could have been avoided. Same way, if you know price patterns of P&F or Renko charts – The combination can be useful.
I found trend-lines on the Line-break charts to be a highly effective tool. Tools such as Fibonacci retracement, support-resistance lines, different price patterns, Pitchfork lines etc can also be used effectively in the Line-break charts.
For example, below is a chart of PVR showing price turning to bullish line on the Line-break chart from Fibonacci retracement levels
Below is a chart showing Harmonic pattern plotted on the Line-break chart
See below Line-break chart of Bharat Forge. Lower High followed by smooth trends. Let’s try and explore how we can read them and build trading systems using combination of lines.
The objective nature of Line-break charts gives us opportunity to study and analyse price patterns. The whole discussion on patterns will be based on the data analysis.
Line-break charts has much more to offer. The whole discussion on patterns will be based on the data analysis. I will keep both things in mind, chart analysis and Data analysis while discussing the patterns and trading systems based on the Line-break charts. I wish to present it as a tool to develop understanding of market behaviour and price patterns. Understanding the Line-break chart was a journey, I wish to relive it and present the thought process while exploring it.
Let us discuss patterns using combination of Lines in the next chapter.
Click here to read the next chapter.