How do you determine a line break? For you who are constantly being deceived ~【Line Analysis Fundamentals Lesson #4】
Hello! I’m SAKU
For those who have gained some knowledge about Dow Theory and drawing lines, you might have had questions like the following?
“What exactly constitutes a break of the line?”
“I keep getting fooled by line breaks....”
I understand. It’s intriguing, isn’t it.
Today, let’s look into such questions!
How to judge the wicks
You draw the line for now, but can you say that a candle has broken the line when it breaks through the line?
Especially when it breaks with the wick.
“Simply breaking the line with the wick does not mean the line is broken.”
I do not consider a break unless the body breaks the line.
Please look at the image below.
If you look at the waveform inside the bottom half of the candle in the image, you’ll see the flow more clearly; basically the closing price ends up inside the line.
Thus, even if there is a temporary high outside the line, if the closing price settles inside the line =you should not treat a wick break as a line break.
If the next candle reverses
Then“The candle that broke the line closed above the line, but the next candle closed below the line”What about that?
Is it good enough that every candle closes past the line? Not necessarily.
“If the candle that broke the line closes inside the line on the next candle, the break is considered failed.””
It might be hard to visualize in words, so please see the image.
In this case, the first candle closes outside the line, but the second closes inside the line.
In other wordsthere isn’t enough force to push beyond, and eventually it is pushed back inside the line—that’s the interpretation.
In other words, if you summarize the two candles’ movement with one candle,the upper wick was formed, but the closing price ended inside the line—that’s the interpretation.
The same judgment as in the first image, right?
The image explains resistance line breaks, but for completeness I’ll also explain support line breaks.
If a bearish candle breaks below a support line but the next candle is bullish and pushes the price back above the line, the two candles together end with the closing price inside the line (on the upside), right?
In other words, initially selling pressure pushed beyond the line (below), but ultimately stronger buying pressure brought it back above and it ended there.
“I fell a bit, but I’m okay now!”
That’s what it means.
In shortA**false breakout**That’s what it was.
So, how exactly do you determine a breakout
With all that in mind,
“The candle that broke the line closes above the line, and the next candle also closes above the line” — only then is the breakout confirmed.
So this is what it means.
In this case, the breakout candle closes, initially tries to move back inside the line, but the next candle is also strong enough to close above the line.
Moreover, as shown above, in the candlestick’s body waveform, surpassing the high of the previous candle confirmsa higher low.
Even after the breakout, it remains quite energetic.
Check the candlestick breakout on a chart
Finally, I’ve pasted an actual chart as a summary.
This discussion is my personal interpretation, but if you keep this in mind when doing line analysis, your chances of encountering false breakouts will be significantly reduced!！
If today’s discussion isn’t easy to understand,read an article on the basics of candlesticksto review the structure of candlesticks properly!
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