Episode #11 - Tutorial in Technical Analysis by Alan Hull January 11th, 2024

The count back line

A close relative to Dow Theory is the count back line. The count back line (CBL) method was developed by Daryl Guppy and is used to fine tune market entries and exits. Thus when a market stops falling and starts rising, we are faced with the question of when we should enter. Inversely, if we own a share that is rising in price and it suddenly starts falling then when do we decide to sell.

The CBL provides a mechanical solution to these questions and is considered to be a relatively tight stop loss, whereas the Dow Theory stop loss is a wide stop loss. For an entry, the CBL is applied by drawing a line, towards the left, from the high of the bar with the lowest low (also known as the pivot point low). You can see how this is done by looking at the following chart, in the lower left corner.

The first bar that the line hits is then used to set up the second line to the left by starting from the high again. From the next bar in the sequence, a line is then drawn from the high towards...