How do you determine a line break? For you who are constantly being deceived ~【Line Analysis Fundamentals Lesson #4】
Hello! This is SAKU
For those who have learned a certain amount about Dow Theory or drawing lines, you may have had questions like the following:
“What exactly constitutes a line break?”
“I get tricked a lot by line breaks...。”
I understand. It’s something you’re curious about.
Today, let’s take a look at such questions!
How to judge the wicks
First, you draw a line, but can you判断 that the candlestick has broken the line? There are times you might wonder about this.
Especially when the break occurs at the wick.
“A break detected only by the wick does not count as a line being broken.”
If the body does not break the line, I do not consider the line broken.
Please look at the images below.
If you look at the lower half of the image, you can see the flow more clearly from the candlestick waves inside; ultimately the closing price ends up inside the line.
Thus, even if the price temporarily makes a high outside the line, if the close is inside the line,you should not interpret a wick break as a line break.
When the next bar retraces inside
Then what about“The break bar closes above the line, but the next bar closes below the line”?
It’s not that every close above the line is good just because it closes above the line; that’s not guaranteed.
“If the next bar after a break closes inside the line, the break is considered failed.”
I know it’s hard to imagine in words, so please look at the image.
In this case, the first candlestick closes outside the line, but the second closes inside the line.
In other wordsthere isn’t enough force to push the price outside, and it ends up pushed back inside the line.
In other words, if you represent the movement of these two candlesticks with one, it would be interpreted asthe upper wick formed but the close ended inside the line.
The same judgment as the first image, right?
The image explains breaking a resistance line, but for precaution, I’ll also explain breaking a support line.
If a bearish candlestick breaks a support line downward but the next bar recovers and closes above the line, combining the two bars, the closing price ends up inside the line (above) eventually, right?
In other words, at first selling pressure pushed the price outside (below) the line, but eventually stronger buying pressure pushed it back inside and finished there.
“It dropped a bit, but I’m still alright!”
That is what it means.
In shorta false breakoutwas what happened.
So, how do we determine a real breakout
With all of the above in mind
“The break bar closes above the line, and the next bar also closes above the line” must be confirmed for the breakout to be valid.
In other words, this is what happens.
In this case, the breakout bar closes and initially tries to pull the price back inside the line, but eventually the next bar also closes above the line due to strong buying pressure.
Moreover, in the above figure, by exceeding the high of the previous candle within the candlestick body, you can confirma higher low.
Even after the breakout, the momentum remains strong.
Confirming candlestick breakouts on the chart
Finally, I’ll attach a real chart as a summary.
This discussion reflects my personal interpretation, but if you keep this in mind when performing line analysis, the likelihood of being trapped by false breakouts will decrease significantly!!
If today’s discussion isn’t clear,read an article on the basics of candlesticksand thoroughly review the construction of candlesticks!
If you found this article helpful, please like or give a ♡! It’s encouraging!
For those who want to learn more advanced and practical line analysis from the basics, see below
