3 Bar Net Line Strategy – a Joe Stowell Price Action Strategy

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The 3 Bar Net Line Strategy was made famous by Joe Stowell. The 3 Bar Net Line Strategy is a price action strategy to determine the change of trend. No lagging indicators are used in this strategy. And because price action is used as the only means to determine the change of trend, this method can be used alongside existing methods such as moving averages to confirm the trend change and thus allow traders to trade in the direction of the trend.

What is the 3 Bar Net Line Strategy?

Existing trend: Down


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Aim: Determining change of trend from ‘Down’ to ‘Up’

  1. Find the lowest low in price and mark the high of this bar as #1
  2. Compare this high to the most recent higher high and label this bar as #2
  3. Using the high of #2 bar, find the most recent highest high and label this bar as #3
  4. The high of the #3 bar becomes the three bar net line. When prices close above the high of the #3, it signals a change of trend.

3 Bar Net Line Strategy3 Bar Net Line Strategy – Trading UpTrends


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Existing trend: Up

Aim: Determining change of trend from ‘Up’ to ‘Down’

  1. Find the highest high in price and mark the high of this bar as #1
  2. Compare the low of the bar #1 to the recent lower low and mark this as bar #2
  3. Look for the lowest low of bar #2 and label this bar as #3
  4. When prices close below the low of bar #3, it signals a change of trend from Up to down

3 Bar Net Line Strategy - Trading Downtrends3 Bar Net Line Strategy – Trading DownTrends

Notes:

  • When new highs or lows are formed, repeat the process
  • Ignore any inside bar that are formed

The above screenshots shows how using Stowell’s 3 Bar Net Line Strategy set up, you can anticipate potential change of trend as they happen.

How to trade the 3 Bar Net Line Strategy

As you can see by now, the trading strategy can be customized in different ways. For example, when trading with divergence, you can make use of the 3 Bar Net Line Strategy to confirm the change of trend and then take positions accordingly.

Another way to trade the three bar net line strategy is to apply moving averages. First, wait for confirmation of a change of trend from the 3 bar net line strategy and then wait for the moving averages to confirm the same and then enter a position.

The chart below illustrates both a buy and a sell signal by combining the 3 Bar Net Line Strategy and the moving averages (20/50 EMA’s).

Notice how the three bar net line first gives us a signal of a potential change of trend on a break of the three bar net line. The change of trend is then confirmed by the moving averages confirming the trend as well.

In both the entries, the set ups were really smooth leaving no subjectivity. Another important factor is that by using the three bar net line, traders can gain more confidence in trading something as simple as moving average crossover.

3 Bar Net Line Strategy - Combining with Moving Averages3 Bar Net Line Strategy – Increased Accuracy when combined with Moving Averages

3 Bar Net Line Strategy – Simple and powerful

The 3 Bar Net Line Strategy is very simple and easy to master. There isn’t much of subjectivity involved when identifying the highs and the lows in prices. It might perhaps take some practice on your part but it’s all gonna be worth it as this will become a lifelong money making skill for you and your family.

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