Sentiment Indicators - Renko, Price Break, Kagi, Point and Figure: What They Are and How to Use Them to Trade

Chapter 3. General Trading Strategies for Applying Price Break Charts

Strategies developed for price break charts have in common a focus on entry conditions. Many of them apply directly in all markets.

Trading in the Direction of the Trend after a Counterreversal Block

This strategy entails the following five steps:

1. Select prevailing trend.

2. Select entry time interval.

3. Detect counterreversal.

4. Place a buy stop order or a sell stop order.

5. Identify an entry location.

6. Let's look at these steps in order.

Select Prevailing Trend

For traders who want to join the existing trend, a key step is confirming what the trend is. This popular strategy is greatly enhanced by the use of price break charts. When a trader uses price break charts, the strategy is redefined as trading with the prevailing sentiment. To find the prevailing sentiment, the trader simply needs to confirm what the latest sequence of blocks in price break charts is showing. The best way to determine the prevailing sentiment is to use three time frames. A big-picture time frame could include one-day, four-hour, and five-minute price break charts. A trader oriented to intraday trading would favor a set of thirty-, ten-, and three-minute price break charts. A scalper would use five-minute, three-minute, and one-minute price break charts. If there is doubt as to which sentiment is prevailing when looking at any time frame, simply zoom out to a slightly longer time interval. Figure 3.1 shows an example of five-minute, three-minute, and one-minute ...