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.