Counts on 3-box reversal charts

Now, we will learn '3-box reversal charts'.

3-box charts lend themselves to two counting methods, vertical and horizontal, because of the way the chart is constructed.

It is important to note at this stage, that 3-box counts cannot give an upside and a downside target from the same pattern. Only one direction is possible and is triggered on a breakout of the pattern.

Vertical counts on 3-box reversal charts

The vertical count measures the length of a column of Xs or Os and projects it by 3 times that length.
That is the easy part; however, choosing the correct column to count is important, so careful notes must be made of the following guidelines.
Vertical counts may only be established from the following columns:
The first move up off a bottom; in other words, the first column of Xs after a bottom has been made.
The first move down off a top; in other words, the first column of 0s after a top has been made.
The second moves off a bottom if the second column is part of the bottom pattern, namely that the bottom is made up of either two Os at the same level, or two 0s where the second 0 is only one box higher than the first and if the first column of Xs is a short column.
The second move off a top if the second column is part of the top pattern, namely that the top is made up of either two Xs at the same level, or two Xs where the second X is only one box lower than the first, and if the first column of 0s is a short column.
Any other significant X or 0 column. This is not a licence to count every column you see. 'Other significant column' means either an intermediate mini-top or mini-bottom during an uptrend or downtrend, or a breakout column from a congestion area.
At this point it is important to understand that only these column types may be used to establish vertical counts. No other column should be counted, as this devalues the method and results in too many counts, giving a false impression as to the count's effectiveness.

Step 2 - Count the number of Xs in the column and calculate the count. Once the column has been chosen, and its length fixed by the emergence of a new column in the opposite direction, count the number of Xs in the column.

Multiply the number of Xs by the box size (the value of each X and 0).

Multiply this product by the reversal, which is 3.

Add this total to the value of the lowest 0 in the column of 0s immediately to the left of the counting column.

You now have the upside target, which you may mark on the chart.

Vertical upside counts on a 3-box reversal chart showing columns that may be counted.

Count 1

The price falls to a low in column 3. Column 4 is the first column of Xs off the bottom. This allows count 1 to be established, once a reversal of 3 Os has been plotted in column 5 as follows:

Target = (number of Xs in column 4) x (box size) x (reversal) + lowest low in column 3.

There are 4 Xs in column 4, the box size is 5 and the reversal is 3.

The value of the lowest 0 in column 3 is 440.

Target = (4 x 5 x 3) + 440 = 500

Count 2

You may count the second column off the bottom if the first column is short. Count 2, therefore, utilises column 6 as follows:

Target = (number ofXs in the column 6) x (box size) x (reversal) + Lowest low in column 5 •

There are 10 Xs in column 6, the box size is 5 and the reversal is 3.

The value of the lowest 0 in previous column 5 is 445. Target = (10 x 5 x 3) + 445 = 595

Count 3

To establish any additional count on the chart, you must find a significant column according to the rules.

The price spends a number of columns consolidating sideways after the move off the bottom but finally breaks out of the congestion area in column 12.

Column 12 changes the look of the chart and is, therefore, a significant column.

It is a column that has changed the look of the chart, so count 3 can be established as follows:

Target = (number of Xs in the column 12) x (box size) x (reversal) + lowest low in column 11

There are 12 Xs in column 12, the box size is 5 and the reversal is 3.

The value of the lowest 0 in column 11 is 475. Target = (12 x 5 x 3) + 475 = 655.

Vertical count establishment and activation

It is important to note that there are two stages to the vertical count. There is the establishment stage and the activation stage.

The establishment stage occurs when the length of the column being counted is fixed by the addition of a new column in the opposite direction. The count can then be performed and a target established. The count and the target cannot, however, be considered active until there has been a break above the highest X in the counting column (in the case of an upside count), or a break below the lowest 0 in the counting column (in the case of a downside count).

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