So, Line-break chart move only when price trend or reverse by a certain criterion. It condenses the price action of price-time charts and displays only trending moves. Below is the example of a Three-line break chart. Blue coloured lines are bullish lines and Red lines are bearish lines.

These charts are visually very appealing and captures the trending move in a visually appealing format. By constructing a price chart in this manner one can easily classify the price between bullish and bearish lines.

The reversal price values are also known in advance. If you are following three-line break reversal chart, lowest price of last three lines is a bearish reversal level and highest price of last three lines is a bullish reversal level.

This can be a helpful information from a trading perspective. The user thus knows where a stop can be kept.

How they are different from other Noiseless charts?

As mentioned earlier, P&F, Renko and Kagi are other one-dimensional charts. P&F charts are plotted vertically, and price move captured via fixed boxes. We need continuation and reversal value to plot them. Renko charts are plotted diagonally and price action is plotted as bricks based on the chosen brick value. Reversal value is also required to plot them. Kagi charts are also plotted vertically but need only reversal value to plot. I have a different take on them and will write about them separately.

Line-break charts need reversal value, and the move is not divided into fixed length of boxes. That is why the length of the line would vary as per the price trend. Prices are plotted as per the move (without capturing them into fixed length brick or box) is an important property of the Line-break chart.

So, each of these methods have some unique properties to offer. I believe in exploring them and talking about possibilities of trading systems using them. The biggest advantage of noiseless charts is that – they are objective in nature and simple to follow once understood. Indeed, they can help in removing noise from the charts and between the ears.

Understanding Line-break charts

So, now you know how Line-break charts are constructed.  Think, what does a Line in a Line-break chart represent? It is a difference between two closing prices. A body of a candle in candlestick chat is a difference between open and close. In Line-break charts, body is a Line. Line of a Line-break chart is a difference between current closing price and a previous closing price. There are no shadows. Do we have any charting facility where this feature is available? No! It is a unique property of Line-break charts.
At the end of the day when we discuss market or stock, how the rate of change is described normally? We say a stock went up or down by X points. How is it calculated? By comparing it to previous closing price – right?

When a stock rises or falls significantly, the length of the line will be big. If stock went up or down by a smaller value – length of line will be small. Have a look at the charts below.

More on Length of lines later. Each Line represent two prices: Current price and previous price. Let us call it the high price and the low price of Line.

When Line is bullish: Current closing price becomes high of the Line and previous closing price becomes Low price of the Line.

When Line is bearish: Current closing price becomes Low of the Line and previous closing price becomes High price of the Line.

The combination of Lines helps us in analysing the price pattern.

Have a look at below Line chart of Tata steel.

Observe the price patterns in circle A, B, C and D marked on the chart. Pattern A captures a down trend but volatile price action. Pattern B is a sideways and narrow range market condition. Pattern C captures an but there are some small corrections in between. Pattern D is a volatile market in an uptrend.

Observe the same patterns in Line-break format below.

Same price formations are clearly identifiable in the Line-break charts. Trends are clear and noise-free.

Advantage is - number of lines can be calculated in the trend making the chart objective and give us opportunity to design patterns and frame rules to trade.

Series of lines in Line-break charts shows a strong trend.

So, Line-break charts display clear trends. They are objective in nature and patterns can be designed using combination of lines.  We will discuss more about that in the chapter on Patterns.

Time Frame

One-dimensional charts are also known as a Time-less charts. They don’t consider time while plotting the charts but time is and volume can be plotted on these charts. Price and time are fundamentally different.

Time passes by while price trends. By plotting charts based only on price, we are opting not to plot patterns when price did not move.

Price moves = Trend

Time passed without price moving = Noise

Hence, I like to call them Noiseless charts rather than Timeless. When we plot Noiseless charts, we prefer to look at price moves irrespective of time.

But we plot them on Daily, weekly, monthly, One, min, hourly etc. What is this then? It is a data frequency. For example, data frequency is weekly when the chart is plotted on weekly timeframe. Meaning, we will consider price after last day of the week. What happens in between can change by end of the week. Same way, we consider price after fifteen minutes when chart is plotted on fifteen-minute timeframe. The price being considered is calculated for plotting Line-break charts.

I prefer using Daily timeframe charts for EOD charts than other timeframes because of this reason. We will discuss timeframe and other things for intra-day in the later chapters after discussing few important concepts of Line-break charts.

Data

There will be more of continuation Lines on the Line break charts because there is no criteria for continuation lines. It may seem logical that more bullish lines would be printed in an uptrend and bearish lines in a downtrend. This however needs be tested to confirm if there is any such correlation with the state of the trend.

Below Table shows yearly proportion of bullish and bearish line appearance in daily Three-line break chart of Nifty 50 during 1st January 2005 to 31st December 2019. 

It is evident that the occurrence of bullish & bearish lines are in line with the market undertone during the year. Bullish lines dominate in bullish scenarios and vice-versa. They are close to equilibrium in consolidation phase.

That means, if focus is more on bullish patterns when bullish lines are dominating could be a sensible strategy. Focus can be shifted to adopting bearish strategies when bearish lines starts dominating.

Let us explore this. The objectivity of Line-break charts makes them highly effective from Data testing perspective. I am taking the advantage of that feature and opting the Data testing approach while discussing the concepts. Let's briefly discuss conventional analysis on Line-break charts in chapter 2.