The Three Line Break Indicator (TLB) is a technical indicator used in forex trading. It resembles a vertical row of a rectangle, the height of which is determined by the degree of price volatility. This indicator takes its name from the standard number of lines used to denote a break. The Three Line Break Indicator can be used with many different timeframes and currency pairs. It’s shown as a line on a candle. The default parameters are readily modifiable from the input tab. Feel free to adjust the settings and parameters to your liking. You can learn more about the three-line break indicator and its strategy in this post.
What is the Three Line Break Indicator?
The three-line break presents a new approach for analyzing price charts. It’s a kind of Japanese chart that, unlike candlesticks, draws its lines from the open to the closing price of a candle. Important price changes are highlighted, but the whole price action is not shown. It’s not time-based; therefore, it may appear different from a regular chart. The indicator may be used by traders to map both long- and short-term strategies for almost any currency pair. But you need not keep tabs on all three line-break setups. They are automatically posted by the three-line break indicator.
Three Line Break Indicator Strategy
The Three Line Break Chart, as its name implies, focuses on breaking three lines. Two-line reversals can happen inside a trading range or as an extension of the larger trend. A three-line break signifies a significant price movement that may indicate a trend reversal. When three bearish lines form and a single bullish line breaks the high of these three lines, it signals a bullish trend reversal. When three bullish lines form and one bearish line breaches the low of these three lines, this indicates a bearish reversal.
Three-line break indicator produce distinct reaction highs and lows on which to build resistance and support. Bar and candlestick charts can be analyzed in the same manner. By changing the number of lines used to find the break, the sensitivity of reversal signals can be changed. So, a two-line break is another sign of a possible reversal that can be used by traders doing short-term operations. Long-term investors may find four-line or even ten-line breakdowns more interesting due to the reduced number of signals they provide. The Japanese often employ a three-line break.
Buy Signal
- Identify a market with a clear uptrend.
- Allow the price to pull back creating three red candles.
- Then, you may open a long position if a bullish candle breaks through the three candles.
- Place the stop order just below the entry candle.
- Close the position as soon as a red candle appears.
Sell Signal
- Identify a market with a clear downtrend.
- Allow the price to pull back, creating three red candles.
- Then, you may open a short position when a bearish candle breaks through the three candles.
- Place the stop order above the entry candle’s resistance.
- Close the position as soon as a green candle appears
Three Line Break Indicator Pros & Cons
Pros
- Using this indicator, major highs and lows are easily identifiable.
- It can help identify price reversals as they occur.
- There is no arbitrary reversal criterion; the price dynamics themselves indicate the reversal.
Cons
- The range of the last two lines might vary considerably.
- Sometimes reversal signals come after a new trend has already been established.
- There are several potential trades that would have been available if we were not bound by the three-line pattern, since there are pullbacks that would consist of two or four lines rather than three.
Conclusion
The three-line break indicator is a useful indicator for spotting buy and sell signals when using the three-line break strategy. It consists of a retracement of three lines during a downtrend or uptrend. You need only examine the indicator and place a buy order when it displays a bullish signal, and vice versa. The Three-Line Break indicator eliminates noise by concentrating only on price movements. However, if the price moves by a certain amount, the lines will shift to reflect the new status. The range of the final two lines determines this amount, as opposed to the preset box size used in Point and Figure charts. This margin of error often varies widely. Technical traders can spot uptrends and downtrends by comparing the highs and lows of the period. Uptrends are shown by rising highs and falling lows, while downtrends are shown by falling highs and falling lows. Similar to other methods of technical analysis, the results from Three Line Break indicator should be double-checked using other technical analysis tools.
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