What is Law of Charts ?

The Law of Charts defines four basic formations known as 1-2-3 lows and highs, Ross hooks, trading ranges, and ledges.

These occur in all time frames because the depict human action and reaction vis-à-vis price movement.

What makes these formations unique is that they can be specifically defined. The ability to formulate a more precise definition sets these formations apart from such vague generalities as “head and shoulders,” “coils,” “flags,” “pennants,” “megaphones,” and other such supposed price patterns that are frequently attached as labels to the action of prices.

A 1-2-3 high or low comes at the end of a trend or swing. It forms as the result of a change in the direction of prices. The 1-2-3 low forms as the result of buying pressure overcoming that of selling pressure. The 1-2-3 high forms as the result of selling pressure overcoming buying pressure.

A ledge forms as a result of profit taking, uncertainty about future price direction, or both. You might consider it as a pause in the overall movement of prices in a single direction.

A ledge is the smallest of a number of consolidation formations: it never consists of more than 10 or less than 4 price bars. It is denoted by containing two matching or nearly matching highs and two matching or nearly matching lows.

Any data that contains both a high and a low, will form these patterns; even data that has nothing to do with markets and trading.

The Law of Charts defines four basic formations known as 1-2-3 lows and highs, Ross hooks, trading ranges, and ledges.

These occur in all time frames because the depict human action and reaction vis-à-vis price movement.

What makes these formations unique is that they can be specifically defined. The ability to formulate a more precise definition sets these formations apart from such vague generalities as “head and shoulders,” “coils,” “flags,” “pennants,” “megaphones,” and other such supposed price patterns that are frequently attached as labels to the action of prices.

A 1-2-3 high or low comes at the end of a trend or swing. It forms as the result of a change in the direction of prices. The 1-2-3 low forms as the result of buying pressure overcoming that of selling pressure. The 1-2-3 high forms as the result of selling pressure overcoming buying pressure.

A ledge forms as a result of profit taking, uncertainty about future price direction, or both. You might consider it as a pause in the overall movement of prices in a single direction.

A ledge is the smallest of a number of consolidation formations: it never consists of more than 10 or less than 4 price bars. It is denoted by containing two matching or nearly matching highs and two matching or nearly matching lows.

Any data that contains both a high and a low, will form these patterns; even data that has nothing to do with markets and trading.