The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

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Mechanics and Dynamics of Charting


Chart Constructs with no Measures of Constancy
There exist certain chart constructs where there exist no measures of constancy.
This implies that the range, duration, volume, number of transactions, and volatil-
ity of each bar is variable.

three‐Line break Charts Three‐line break charts are unique in that they
possess no measures of constancy. Once price closes above the previous high
or below a previous low, a new line is created. Once three successive lines are
created, a reversal may only be plotted if price meets or exceeds the low (or
high, in an upside reversal) of the last three periods in a downside reversal.
There are bullish white lines and bearish black lines. See Figure 3.15 for a
comparison between three‐line break and Renko charting for the Currency
Shares Euro Trust.

Chart scaling There are three basic types of scaling employed when creating
price charts, namely the:


  1. Linear or Arithmetic Scale

  2. Ratio or Logarithmic Scale

  3. Square Root Scale


The most common scalings used are the linear and ratio scalings. The square
root scale lies somewhere between the linear and ratio scales with respect to its
scale increments. It is not commonly used on most platforms.

figure 3.14 Comparing Constant‐Volatility to Constant‐Range Charting.
Courtesy of Stockcharts.com
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