How do you determine a line break? For you who are constantly being deceived ~【Line Analysis Fundamentals Lesson #4】
Hi there! I’m SAKU
For those who have learned a bit about Dow Theory and drawing lines, you may have had questions like the following?
“What qualifies as a line break, exactly?”
“I get tricked a lot by line breaks...。”
I understand. It’s something you’d be curious about.
Today, let’s take a look at such questions!
How to judge the wicks
You drew the line for now, but can you judge that the candle closed beyond the line?
Especially when the breakout is via the wick.
“A breakout is not considered confirmed just because the wick broke above the line.”
I do not consider a breakout unless the body (real body) closes beyond the line.
Please look at the image below.
If you look at the lower half of the image, the waveform inside the candles makes the flow easy to understand, but essentially the close ends up inside the line.
Thus, if the price briefly makes a high outside the line but closes inside the line, it meansthe breakout by the wick alone is not considered a true breakout.
If the next candle reverses
Then“The breakout candle’s close is above the line, but the next candle’s close ends up below the line”What about that?
It’s not as simple as “any close beyond the line is a breakout.”
“If the next candle after the breakout closes inside the line, the breakout is considered failed.””
I know it’s hard to imagine in words, so please look at the images.
In this case, the first candle closes outside the line, but the second candle closes inside the line.
In other words,there isn’t enough力 to push it out, and it is eventually pushed back inside the line, which is the interpretation.
In other words, summarizing the two candles into one,the upper wick formed, but the close was inside the line, which is the interpretation.
The same judgment as the first image, right?
In the image, I explained about breaks of resistance lines, but for completeness I’ll also explain break of support lines.
If a bearish candle breaks below a support line but the next candle is bullish and lifts back above the line, the two candles together end with the close inside the line (above), right?
In other words, initially the selling pressure pushed beyond the line, but ultimately stronger buying pressure brought it back inside the line and it ended there.
From a buyer’s perspective
“There were down moments, but I’m okay now!”
That’s what it means.
In shortThe false breakouthappened.
So, how do you actually confirm a breakout?
With all of the above in mind,
“The breakout candle closes above the line, and the next candle also closes above the line” is when the breakout is confirmed.
That’s basically what it means.
In this case, the breakout candle closes, initially looks like it might pull back inside the line, but the next candle also closes above the line due to stronger buying pressure.
Moreover, in the above scenario, because the high of the prior candle was exceeded in the candle waveformthe push-lowis confirmed, right?
Even after the breakout, the momentum remains strong.
Confirming candle break on a chart
Finally, I’ll attach a real chart as a wrap-up.
Personally, this interpretation is my own, but if you keep this in mind when performing line analysis, the chance of getting trapped by false breakouts will significantly decrease!!!
If today’s discussion isn’t easy to grasp,read the article on the basics of candlesticksand review how candlesticks are formed from the ground up!
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