Line Break Charts mimic the Japanese chart style similar to Kagi and Renko Charts, in that they disregard time intervals and only focus on price movements. Line Break Charts are constructed by a series of up bars and down bars (referred to as lines). Obviously, up lines represent rising prices, while down lines represent falling prices. The key to using Line Break Charts is the user defined Number of Lines setting. A Line Break Chart takes the current closing price and compares it to the closing price of a previous line. The most common Number of Lines setting is 3. What this means is that the closing price of the current line is compared to the closing price of the line 2 period's ago. If the current price is higher, it is an up line and if it is lower, it is a down line. If the current closing price is the same or the move in the opposite direction is not large enough to warrant a reversa,l then no new line is drawn.
There are only four types of lines
Each new closing price has three possible outcomes
The user defines the Number of Lines value. The current close is then compared to a previous line close. If 3 is the user-defined value, then the current close is compared to the close 2 lines ago (the current line plus the 2 previous lines makes a total 3). The appropriate line is then drawn (or not drawn) based on the above guidelines.
Very much like Kagi Charts and Renko Charts, Line Break Charts are popular because of the way that they filter out noise and make price movements easy to digest and understand. Some of the typical uses of Line Break Charts are finding support and resistance, spotting breakouts, and discovering classic chart patterns.
Support and Resistance — Oftentimes, Line Break Charts reveal areas of support and resistance.
Breakouts — Breakouts occur when bars begin to generate in a defined direction after a period of trading within a support and resistance bound trading range.
Classic Chart Patterns — with charts that filter out time and only focus on price, such as Line Break Charts, classical chart patterns can often be spotted.
Up Bars — Change the Color and Outline of Up Bars.
Down Bars — Change the Color and Outline of Down Bars.
Projected Up Bars — Change the Color and Outline of Projected Up Bars.
Projected Down Bars — Change the Color and Outline of Projected Down Bars.