Did you watch this webinar recording on the Highly Profitable Candlestick Breakout Patterns? If you haven’t, you should watch this webinar recording as it explains in detail high probability candlestick breakout patterns that can help you catch the big moves in the market. Now the problem with candlestick charts is that they contain a lot of noise and false signals. This noise confuses most new traders who trade on these false signals and lose and then think that candlesticks don’t work. Three Line Break Charts are a modification of the candlestick charts.
Three Line Break Charts have also been invented by the Japanese. The idea behind these Three Line Break Charts is to remove the noise in the candlestick charts so that you get a better picture of the market. Like their other Japanese cousins (Kagi and Renko), Three Line Break charts filter out the noise by focusing exclusively on price changes. The lines do not change unless price changes by a specific amount. In contrast to Point & Figure charts, which used a fixed box size, this amount depends on the range of the last 2 lines. This range can vary quite a bit. The ability to filter noise makes these charts especially useful to determine the underlying trend. It is easy to spot important highs and lows. Armed with this information, chartists can identify uptrends with higher highs and higher lows or downtrends with lower lows and lower highs. As with all charting techniques, chartists should employ other technical analysis tools to confirm or refute their findings on Three Line Break charts.
However, there are some disadvantages to using these charts. The main disadvantage being the signals are generated when the new trend is already well underway. Many day traders overcome this shorting by looking for the two line break instead of the three line break signal.
This is a good article that explains how to implement Three Line Break Charts in forex. It also provides you with the code for a custom Three Line Break Indicator. You can download this MQL5 file.
This is a good case study of the Three Line Break on USDMXN (US Dollar/ Mexican Peso). There are many traders who love to trade exotic pairs like the Mexican Peso, Russian Rubble, Turkish Lira, Norwegian Krone etc. The only problem is that the not many brokers provide these currency pairs and those who provide them charge big spreads. But the returns can be huge when especially these pairs start falling rapidly just like what the Russian Rubble did a few years back when it fall more than 50% in a few days. Three Line Break Charts can be good when trading these exotic pairs as this three line break is a pretty strong trend reversal signal that you can use to catch big trends. You should read the case study on USD/MXN trading with Three Line Break. It provides some very good illustration for you to go over.
This is what Steve Nison, the leading authority on candlesticks suggests. Combine Three Line Charts with Candlestick Breakout patterns to drastically increase your win percentage.