Trading is not simply about highs and lows, and to be honest; it is tough to identify which format to opt for with so many charts involved. If you’re not so time reliant when you trade, the line break chart would be the perfect option for you. These charts work regardless of the time and begin changing only when there is a significant change.

What is a 3 line break chart?

The 3 line break chart represents a chart where prices evolve based on price instead of time. This chart is presented using two colors black and white lines or blue and red lines. All changes on the chart are based on closing prices.

Download 3 line break chart for MT4 indicator

A total of 3 charts function together, displaying blue and red lines; the blue ones show the rise, and the red one implicates the downfall. All pricing details deviate towards a particular path until reversal is under warranty. Remember, a reversal is only visible when the closing price exceeds the high and low of the lines present before the functioning of recent ones.

To know more about what exactly it is about here’s, a line break chart explained right in this article!

How is a line break chart constructed?

Before you start understanding how a chart is formed precisely, you need to understand some aspects clearly. Primarily, the blue and red lines displayed on the charts are referable to as ‘lines.’ Furthermore, understanding the line changes is very important, as it only happens based on the closing prices, unlike other charts that focus on the high and low range. Such charts mainly evolve based on price, and time isn’t a crucial factor for them.

What are two-line reversals all about?

With every other closing price comes this set of three possibilities:

When the price is visibly extending in the same direction, a new line in a similar color is drawn to signify it.
Another line is drawn to signify a price change that provides a warranty to a reversal, but this time in another color.
There is no change or drawing of lines on the chart when the difference is not capable enough to warrant that particular reversal.

The highs and lows occurring on the lines indicate the chances of a reversal point. For instance, if the latest line is blue, i.e., pblueicting downfall, the highest amongst the last two lines will indicate a reversal point. To witness a complete reversal, closing above the justified high will display a blue line, signifying reversal. But, you should ensure that only the latest visible line should be blue, and the lines existing before that can be both in blue and red.

If the recent line is blue, then the low of the last two lines will determine the reversal point. The closing price before this low will require a display of a red line to finally justify a reversal in the price. But again, keep in mind that only the recent line in this situation be blue, not the prior ones.

What about three-line reversals?

The three-line break chart strategy works towards diminishing all three lines. Unlike two-line reversal that occurs during the trading range or continuing a trend of a more extensive scale ahead, it signifies more substantial moves, displaying a clear opportunity of a trend reversal. The bearish reversal of trend is visible when three blue lines are formed, and a redline interrupts, breaking the low. On the other hand, a bullish reversal is visual when three back lines are included, and a blue one tends to break the higher point formed with these.

What about support and resistance? Also, are there any specific patterns?

The basis of support and resistance is defined when there is an apparent reaction of both the highs and the lows occurring on the line break graph. Thus, it has a very similar function to candlesticks or bars charts when it comes to this factor. On the other hand, the patterns are double bottom, head-and-shoulders pattern, double top, triangles, and some other forms.

Conclusion

To sum up, let us not forget that the 3 line break chart isn’t the only Japanese invention when it comes to charts; Kagi and Renko charts are present. Just like them, these charts focus on displaying changes only when the prices are significantly fluctuating. Being in total dissimilarity with Point & Figure charts, there is no fixed size of the box, and instead, the amount relies on the last two lines, along with their respective ranges.

The added advantage of using the line break strategy is that you can discover the underlying trend with the utmost ease as it filters the other aspects out and focuses on price chanBut, Of course, being an analyst, you could also use other tools along with these charts for the best determination of higher highs and higher lows, along with lower highs and lower lows.

A journal is used to keep a systematic record related to a specific field or subject. It helps to track and trace different altercations that might have occurred over time. However, trading is an extensive venture, and if you lose track, you might have to endure hefty losses. So, here is the solution. 

How to Keep a Trading Journal?

Traders need to note position type (buy or sell),  entry and close price level, and comments to keep a trading journal. Traders need to state the reasons why they created the position and why they closed. All emotions, news, fundamental and economic indicators must be explained in the trading journal.

Trading journals are a handy tool that helps you record all the trades that you indulge in. Many traders use these journals to analyze and monitor their trades and find room for improvement or prudent moves if any. This record-keeping tool will transfer all the data in the form of rows and columns, so you don’t have to worry about remembering everything.

Advantages of keeping a trading journal

Here is why you should keep a trading journal:

• They help you with the SWOT analysis of your trading journey
• It enables you to keep accounts of various trades that you do 
• Point out the best trading strategy that will work in your favor
• It helps to enhance consistency

Keeping a journal is simple yet very effective if you look to boost your trading business by acting as a resource in creating a plan. A plan helps create a pathway that includes procedures, steps, guidelines,  etc., that you can follow to manage the risks involved and maximize the profit.

How can I create a trading journal?

The creation of a journal involves simple steps that can be customized according to the creator’s preferences.  Here are the steps that you need to follow if you are looking to create a trading journal-

1. You have two options, a book or a spreadsheet. A spreadsheet is more convenient as it is electronic and has many automated features.
2. Identify the type of information that you want to keep track of. (trade, date, assets, size, etc.)
3. After placing your stop losses and taking profits, head to the journal and record the transaction immediately.
4. Once you have recorded these trades over a specific period, analyze them to find the weak and strong points.

Step 1: Choose between a book or spreadsheet.

A spreadsheet is primarily preferable for keeping a journal.  It is because you won’t have to do anything manually, except for entering data meticulously. The built-in functions can help you in making comparisons too.

Step 2: Identify the type of information that you want to record

Here are some things that you should include in your journal.

Why are you trading

This can be due to technical or fundamental analysis and evaluation; you might even do a mix of both. After indulging in various trades, you can compare and contrast the information and evaluate the trades that garnered results. 

Your judgments

This includes the reason behind your feeling against or in favor of a trade. For example, is this trade in line with the code of conduct, does it comply with the technical pattern you follow? If these points check out, then the conviction is ‘high.’ Otherwise, it’s ‘low’ or ‘medium.’ This will help you keep a record of the trades that were most profitable for you in each category. Then you can continue the trade with the category which is the most convincing.

Other things

Other criteria might include how you perceive a trade with a particular asset, your emotional feelings, etc. It depends on you, as the trade journal belongs to you.

Step 3: Recording the trade

A trade should be recorded as soon as it is completed to avoid forgetting any crucial detail.  This should be made only when you place stop-loss and take-profit.

Step 4: Collect the data and analyze

After a week or a month, you will have ample data to compile and analyze your trade data.

If you have a conviction or judgment criteria in the journal, you can tally your data from high, medium, and low categories. Then you can check if you see which conviction benefits you the most in trading. 

For instance, if you had 20 trades, and 18 were successful and profitable, that converts to 90% profitability on historical trades. However, if the conviction was low, say, only 8 out of 20, that converts to the low success of trade (only 40%). Hence, you can pan out that it will only be prudent to trade when the conviction is high.

Conclusion

If you have been looking for a sign to log in to your trade, then this is it! A trade journal should always be a priority for traders. This journal can help set up a course of action and find out about suitable strategies for the business.

To conclude it all, trading journals are used for.

• Helps in keeping a record of all trading activities
• Test different strategies to find the most suitable one for your business
• Finds the shortcomings and overcome them through a thorough study

A concept of exchange applied by W.D. Gann or William Delbert Gann, as he is admired, gives a feel of chicanery and charisma. W.D. Gann is well known for his market analysis, just like Gann’s square of 9, which includes a combination of mathematical strategies and geometry. He was a believer of God and commenced trades when he turned 24. W.D. Gann was a foreman of 33rd degree, and due to these people’s attributes, his skills in maths and ratios.

For the significant section, W.D. Gann’s job was accessible to analyze. Hence, if you wish to deal using Gann’s technique, you need to have sharp skills and better intelligence.

How to trade with the Gann method?

The Gann method can be used in trading using angles, price, and time as triggers. If the price breaks an angle, then the price will usually rotate to the next angle. In that case, traders can forecast the next target price. Angles help traders to define the direction of the trend and how the trend is strong. For example, if the price is trading above the 1:1 (45 degrees) angle, the trend is strong while below 45 degrees is weak.

They are using W.D. Gann’s method does not prove to be as simple as other indicating techniques where buying and selling seemed feasible. And the reason is simple; it takes some time to learn a new approach. Just applying some movement to the chart and taking it further doesn’t work.

Another objection is that no particular Gann dealing techniques with professionals from which one can study. And the question is, why are dealers still sticking with a strategy derived in the 20th century?

We believe that as it is too complex to decode, it makes you feel that there might be something significant that one can use. For example, the Gann Square of 9 is well known amongst all other Gann approaches.

Download Gann Square of 9 indicators MT4 and Gann box indicator

Download Gann square of 9 indicators Mt4 with Gann degree mt4 indicator (Gann box indicator on the chart)

The three most basic geometrical shapes like Circle, triangle, and square, forms the base for major Gann’s method.

Gann’s square and wheel are some of the most familiar operations and form a pillar.  Square of 9, Hexagon, and Square of 144 are a few famous methods of Gann.

What is Gann Square of 9 in Trading?

The Gann Square of 9 in trading represents a square of 9 is a spiral of numbers with an initial value “1” starting at the center used to measure key elements, such as pattern, price, and time.

This method of Gann Squares rates and duration. Gann’s square of 9 is named based on the pattern it forms as represented in the above-given chart. As you look more precisely, number 9 will denote the fulfillment of the 1st square.

With “1” commencing from the center, The square of nine makes a spiral of digits. Initiating from this rate, the numbers ascend as we move further in a clockwise direction. Thus, every cell into Gann’s square of 9 serves a fluctuating point as per the professionals.

How to Calculate the Square of Nine?

Digits inside the Gann square of 9 follow a constant arrangement. For instance, you choose 54 from the above-given square, the rate to its right, which is 29, is achieved as follows:

Get the square root of the digit and minus 2, and re-square the answer.

Example: 54 is the actual number

The square root of 54 = 7.348469

7.348469-2 = 5.438469

(5.438469)2 = 29 rounded off

To resolve the number to the left, rather than eliminating 2, the number is supplemented. Hence, we add 2 to the square root of 54 (7.348469), we receive the value 9.348469. We then square this answer to get the number 87.

Working of Gann Square

The Gann square of 9 tries to recognize adjustment of duration and rate to analyze the future values.

As we talk about Gann Square of 9, the below-mentioned key numbers are crucial.

0 or 360 degrees: 2, 11, 28, 53….
45 degrees: 3, 13, 31, 57, 91…
90 degrees: 4, 15, 34, 61, 96…
180 degrees: 6, 19, 40, 69…
Cardinal Cross and Ordinal Cross

Another set of crucial digits counts under the ordinal cross and the cardinal cross.

An image underneath represents the cardinal cross, highlighted by the blue vertical and horizontal lines. The ordinal cross values are shown in the yellow cells.

Values that are inside the cells show the ordinal and cardinal cross are significant backing and protections. Though both are very crucial, the ordinal cross is less critical and can intrude as per time. At every forty-five degrees, actual numbers take place. Individual degrees serve to display time.

The chart seen before is a general 1×1 chart. For instance, if rates go up to 54 in a day and then come down, the upcoming backing is 29 because it is the nearest number in the entire square of 9.

Circle Around the Square

A circle joining all four edges of a quadrilateral welcomes the idea of angles into existence. Angles that can be measured in terms of degrees can spot adequate backing and defense when rates move at an angle.

The Gann Square application

If you wish to use the Gann chart, change the initiating digit 1 with another number of your selection and needed step value. The increment in the example provided above is one, although you can place bigger or smaller values.

As a result, the numbers you receive are the major defense and backing levels of cardinal and ordinal numbers.

Depending upon the data, dealers can keep an eye on purchasing or disposing of at the earliest backing or defensive level.

W.D. Gann’s square of 9 is also applicable in global moves and degree of rates depending upon the circle.

Analysis and exchanging are two different concepts. For instance, an analysis that says Emini S&P500 will grow to 2100 in a specific duration. But the research will not say whether the movement till 2100 is inline or not, or if the value drops by a large number of points, how will that happen.

As a matter of analysis, it might look a bit pointless, yet they can determine the nature of a deal, whether it’s a win or a loss.

In previous articles, we learn everything about RSI.

What is a 2-period RSI strategy?

Two-period Relative Strength Index (RSI 2) represents a mean-reversion RSI strategy where traders buy assets below RSI value 10 and sell when RSI value above 90. Larry Connors creates this aggressive reversal strategy.

Trading rules:

BUY if Daily RSI(2) below 10 AND Daily SMA >200

SELL if Daily RSI(2) below 90 AND Daily SMA<200

It is most beneficial for traders to look at avenues to buy when the 2-Period Relative Strength Index is below 10; it is deemed as deeply oversold at this point. On the contrary, a trader should sell when the 2-Period Relative Strength Index passes 90 marks.

This strategy is short-lived for recent trends; it follows the aggressive approach but is not viable for the long term. However, understanding this strategy will enhance and refine the application and implementation of method while trading.

The specifics of the strategy

This strategy is concluded in 4 steps.

• The first step entails the trader identifying the trend that is ongoing by implementing a long-period moving average. 200 days is preferable, as recommended by Larry Connors. As mentioned above, traders should consider buying avenues when the 200-day SMA is downward, while selling should be considered at an above 200-day SMA.
• The second step includes determining the buying and selling opportunities in the more widespread trend. This was done when Larry Connors experimented and observed the Relative Strength Index level from 0 to 10. This concluded that the 0-10 level is for buying options and 90-100 is for selling; these levels were based on the prices that appear after the close. When tested, Larry Connors found that the level below 5 gave higher returns than the level below 10. To explain this further, a lower Relative Strength Index means higher returns on long positions, and for short coverings, it was deemed beneficial to sell at a hike more than 95 than at the level above 90.
• The third stage in the process entails the actual sell short buying and selling and its time placement. Chartists who watch the market can define the position in two situations, before closing and subsequent opening. Larry Connors was a supporter of the close tactic. However, it is debated that before the closing, the traders might depend on the following open, which would include a gap. This opening can either benefit the trader or tumble down his position with a dramatic price change.
• Larry Connors used the example of S&P 500 to explain the fourth stage, where the goal is to decide the exit point. Through this, Larry Connors advised traders to exit before long positions are above the 5-day SMA and short positions are below the 5-day SMA. Chartists can also implement the Parabolic SAR or set up a trailing stop. Sometimes these trends take over the trailing stops; in this case, it ensures that the position is secure until the trend exists.

However, Connor does not advise using these stops. Why is it so? An observation held amongst thousands of traders brought the result that the stops were bringing unfavorable results regarding stocks and stock indices. Using these steps can prevent dramatic losses and big reductions in profits but keep in mind that the market also has upward drifts. These propositions are quite risky, but trading is an uncertain business. If you choose to indulge in it, some risks have to be endured sooner or later.

An instance of trading

In a chart of 200-Day SMA, the bullish signal appears when DIA is beyond 200-Day SMA, and Relative Strength Index(2) is moving 95 or higher. On the other hand, the bearish signal appears when the DIA is below 200-Day SMA, and the Relative Strength Index moves downwards at 5 or lower. If we consider an example where there are three bearish and four bullish signals over 12 months, this is a sign of a profitable situation. Among the three bearish signals, DIA moved lower only at one point, and it moved above the 200-Day SMA in the 10th month. After reaching above the 200-day SMA, the 2-Period Relative Strength Index should not move 5 or below it to create a new buy signal.

As a second example, we can consider that a company is trading above 200-day SMA for most of the timeline. During this time, there are at least 10 buying signals. It would be considered tedious to avoid losses during the initial five stops if the trader zigzags during a period. However, the other five can be profitable if it zigzags later in the year. To put it plainly, it can rebound after reaching the new lows after buying it initially.

What is tweaking?

Anyone should try to observe the strategies and find the signals where improved results can be derived. The secret to avoiding key fitting; it is meant to decrease your profits in the near time. As the example shows, the Relative Strength Index(2) strategy is implemented early because of the pre-existent moves before the signal. This security continues to move after the Relative Strength Index(2) moves beyond 95 or goes below 5. Chartists should scour for hints that prices have reversed after the Relative Strength Index(2) has hit the extremes to amend this scenario. The various techniques used in this situation include candlestick analysis, momentum oscillators, intraday chart patterns, or moves to Relative Strength Index(2).

When the Relative Strength Index(2) charges above 95 during upward price movement, this establishes a treacherous short position. The chartists can enable filtering of these signals by monitoring the Relative Strength Index(2) to go below 50. This indicates that the prices have made a short turn.

Conclusion

The Relative Strength Index(2) strategy helps the traders be aware and take part in the ongoing trends. According to Larry Connors, traders should purchase the pullbacks and not the breakouts,  and this strategy works in favor of that.  

Larry Connors predicted that stops would adversely affect the profits, but creating an exit and stop-loss strategy for the trading system is advisable. Traders can use this article to augment or modify their risk-reward choices, trading style, and personal judgment.