New Techniques  |  OCT 1997

Three-Line Break Reversal Signals by William Arnold

This charting technique is a simple but effective technique for determining the direction of the trend as well as changes in the trend. With volatility in the stock market increasing, many new and elaborate methods have been developed to predict market turns. This poses a problem: Indicators of complex construction may work or they may not, for no apparent reason. So finding system components that follow the keep-it-simple approach may seem unfashionable, but in reality it is a survival technique. In fact, older and simpler indicators have withstood the test of time for good reason. One classic technique is the point and figure charting method, which is used by many professionals to identify and gauge market reversals. Recently, analyst Thomas Dorsey published an excellent expansion of the classic de Villiers work on this charting method. Using point and figure charts, though, requires time, specialized skill and, in some cases, data that may be inaccessible to nonprofessionals. Fortunately, there’s an old, simple and underused approach to predicting reversals, a method similar to one aspect of point and figure. This technique is known as three-line break charting.

by William Arnold