The Action Reaction line set


Action Reaction (AR) line sets tend to capture and frame price movements - be it short corrective swings or longer directional trends. The set generally consists of 3 lines - Action line, Reaction line and a Center line. These lines have the same slope and distance in between as shown on the GBPAUD chart. The additional equidistant lines to the side follow the same slope and are called Warning lines. As price tests these lines we can gain valuable information about where buyers turn into sellers or whether the trend is likely to continue or reverse.

At times, waiting for price to break out of an AR line envelope can test a trader's patience. The uptrend in GBPAUD continued for over a year. Eventually the extension of any Center Line (CL) line will be crossed. The sell signal was published on November 24 as price closed below the CL (red circle). Note how price continued to respect the lines even during the Pound's decline.

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