Point & figure charting is one of the classic techniques of technical analysis. Here's a refresher look at the basics.
"Point and figure (P&F) charting concentrates on price and its changes by eliminating other elements such as time and volume. Key chart features such as support, resistance and trendlines emerge clearly, suggesting entries based on breakout of trading ranges; risk management levels due to trendline breaks; and profit targets using counts. The technique is popular because it is simple. Point & figure charting uses price data with minimum manipulation, making the charts easy to draw by hand on paper or on a spreadsheet. The P&F chart can tell me if I'm wasting time in considering a trade. Like a pedestrian crossing light, it flashes instructions: walk, don't walk; trade, don't trade."
"The P&F approach works equally well with liquid and thinly traded stocks. In any time frame, the support, resistance and trendlines are very clear, so traders can use P&F to build a short list of the best trading opportunities. Some charting software use manipulated price information such as percentage differences between closes. The result may obscure the very essence we seek when we turn to P&F charting."
Point & figure charting uses price data with minimum manipulation, making the charts easy to draw by hand on paper or on a spreadsheet. The P&F chart can tell me if I'm wasting time in considering a trade.
HERE'S AN EXAMPLE
Rule 1 tells us that X = up moves and O = down moves. But applying the rule is difficult when you're making the first entry on a P&F chart. In this case (Figure 2), we will put an X in cell B6 on the grid next to 63 on the price scale shown in column A. I use an X in this case because I know from past data, this was a higher price than it was the day before. Rule 2 instructs us to stay in the same column until price changes direction. The column does not show the passage of trading days, but only the direction and height of each price move.
Figure 2: POINT & FIGURE Here's a basic chart using a box size of three units and a reversal of one unit.
The next day the price retreats, so we change columns again. Using all the sample data from Figure 1B, the completed P&F chart in Figure 2 summarizes 55 trading days of price action for PTZ. It does this in 13 columns. It clearly shows a breakout from an upsloping triangle, and a consolidation followed by another breakout.
