To: Challo Jeregy who wrote (5618 ) 2/7/1999 12:49:00 PM From: Lee Lichterman III Read Replies (3) | Respond to
*OT* I am still no expert on 3 line break charts but trying to learn fast. I saw a few flaws with P&F and they were more confusing on how to read them when trying to decide how to interpret price action between the large areas between bullish and bearish support lines etc. It seemed to me a lot could happen in the price movement before a buy or sell would be triggered (Look at a P&F of MSFT sometime, Xs running for years despite drops in between). So for that I relied on my favorite candlesticks etc. I also like Renko and Kagi charts but I don't know many that use them. I decided to take out the confusion and stick with the simpler 3 line breaks since most people that I knew that had a minimal understanding of P&F were just looking to see if the stock was trending up or down but using other charts for their main reads. 3 line break does that but it seems to trigger a reversal singal a little faster than P&F. As I put on the site, it won't get you out at the top or in at the exact bottom, but you can use the candlestick charts for predicting action then when ready to jump, watch the 3 line charts to see if it will trigger. The 3 line charts reduce whiplash by requiring more movement before a reversal signal is given and I use it to quickly identify a new stock for a trend down or up since it is easy to get a quick read without all the ups and downs of line, bar charts and candlesticks etc. It uses the same basic idea of P&F requiring multiple level penetration before triggering a reversal, however P&F sticks to a static set level of say 3 points per box on a high priced stock and requires 2 or 3 boxes to trigger. That is 6 or 9 points!! However a 3 line break chart uses the last 3 price movements as the trigger. Since often price action slows near a top or bottom, say a stock went up 2 points, then 1 1/2 then 1 then dropped. It will now trigger at the 4 1/2 point level. I have found by watching them however that usually the moves are even slower at the turning points so most times the movement is say 1, 1/2, then the 1 point up reversal move that forms the tweezer top candle or candle hammer move of less than 1/2 point. The reversal gets triggered at 2 1/2 retrace or 2 point move in the case of the hammer. Of course the candle gave the first clue for the move and I wouldn't use the 3 lines by themselves but I like it as a secondary check for trends and reversal verification. I don't use them much for support levels etc although I am sure you could. To do so, I would look for congestion areas of small movements then large movement as the stock breaks out. In the case of the AOL you mentioned, it appears to be around 165 and 95 but like I said, I rely on candlestick, line, and bar charts etc for my supports and resistance points since I am looking for actual patterns, channels, formations and forks which are impossible in a chart designed to not show small reversals and then resumption of the trend. Once the 3 line chart reverses, it will USUALLY keep going in that direction for a while.
