V.6:8 (307-308): Market entry with action/reaction lines by Ron Jaenisch

V.6:8 (307-308): Market entry with action/reaction lines by Ron Jaenisch
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Market entry with action/reaction lines by Ron Jaenisch

Action/Reaction lines are a charting technique developed in the early 1900s by Roger Babson, who founded the Babson Business Institute in Massachusetts and believed Newton's laws of gravity affected the markets.

At the heart of the Action/Reaction Method is the age-old physical sciences law that every action has an equal and opposite reaction. In its simplest form, the Action/Reaction Method shows a trader when and where to add on positions if a market is in a strong trend.

This is accomplished by drawing peak-to-low Action/Reaction Lines on a price chart, a simple technique that starts by finding two major and recent pivots: a high and a low. When you connect the peak and low, you have what is called the center line (Figure 1).

Locate earlier pivot points and from each draw a line parallel to center line. These are the Action lines (Figure 2).

On the opposite side of the center line, draw Reaction lines—one for each Action line and the same distance as the Action line from the center line (Figure 3).

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