Line Break Charts

Line Break Chart is the set of vertical rectangles formed on the basis of close prices. Volume data and time axis are not applied in this method. Steve Nison in his book “Japanese candlestick techniques” says: “Line break charts is similar to the points-and-figure chart, but performs as a more penetrating method when reversal movement of price is determined by market rather than by a trader”.

This is how Line Break Chart looks

 

Building Line Break Chart

The chart starts from certain base price and its comparison with close price of previous trading periods.

Base line (first)

If close price of current candle exceeds base price, while line is laid.

Second line

In the next column the line will be white if its highest point is above the highest point of previous white line.

And on the contrary – the black line is drawn when its lowest point is below the lowest point of previous black line.

 

Third line

If maximum point of the line is above maximal point of previous white lines, the white line should be laid.

Or the black line should be drawn if the lowest value is less than lowest value of previous two lines.

Should the price be located within the range of previous lines, nothing is put on the chart.

It is important that price not only must reach lowest and highest points but must exceed them.

Line break

Let's assume that three subsequent white or black lines were present on the chart, which confirms bullish (white line) or bearish (black line) trends. In this case, reversal will take place when current price is below minimal value of three previous lines (if trend is bullish), or gets higher than maximum value of the lines built earlier (if the trend is bearish).

  

 

Example А

When the highest value of current price is above maximum value of three white lines, the white line should be laid in the next column. When the lowest value of current price is below minimal value of three white lines, the black reversal line should be laid in the next column.

Three subsequent white lines.

Example B

When the lowest value of current price is below minimal value of three black lines, the black line should be laid in the next column. When the highest value of current price is above maximum value of three black lines, the reversal white line should be laid in the next column.

Three subsequent black lines.