Point & Figure Charts (P&F)

Introduction and Advantages
Point and figure (P&F) charting concentrates on price and its changes by eliminating other elements such as time and volume. This chart is popular because it is simple and provides the following advantages:
  • Point & figure charting uses price data with minimum manipulation.
  • P&F charts are indigenous to stock market trading which give you both the immediate and long term view.
  • Formations, patterns and signals are easy to recognize and interpret, and tend to repeat themselves.
  • It enables the investor to do what he should do - stay on a winner while it is winning and get off a loser quickly.
  • The method is dynamic.
  • The fixed interval of plotting may be made to fit whatever you want to chart - stocks, bonds, commodities, speculation or investment.
  • It ignores the static time factor, the confusing volume indications, and irrelevant minor fluctuations.

The basic point and figure chart shows columns of X's and O's which display the underlying supply and demand of prices. A column of X's means the stock price or index is going up. A column of O's means the stock price is going down. Columns of X's and O's alternate back and forth. However, they never appear in the same column. A simple P&F chart is depicted in the following figure:

PF.gif (36408 bytes)

In order to create a P&F chart in Chart FX FE, you must specify a "Box Size" and "Reversal Amount" and if the Box Size is percentual or relative to the price given in the data set. The common practice is to use the high and low prices (not just the close) to decide if prices have changed enough to display a new box. The interaction between these variables are as follows:

Point & Figure charts display an "X" when prices rise by the "box size"   and display an "O" when prices fall by the box size. Note that no Xs or Os are drawn if prices rise or fall by an amount that is less than the box size.

The Box size may be percentual. This means that the box size refers to a percentage instead of a fixed price. For example, if you set a non-percentual box size of 10, Chart FX will draw an "X" or an "O" if the price changes by 10 points. For a percentual box size of 5, Chart FX will draw an X or an O if the price changed by 5%.

In order to change columns (e.g., from an X column to an O column), prices must reverse by the "reversal amount" (another value you specify) multiplied by the box size. For example, if the box size is three points and the reversal amount is two boxes, then prices must reverse direction six points (three multiplied by two) in order to change columns. If you are in a column of Xs, the price must fall six points to change to a column of Os. If you are in a column of Os, the price must rise six points to change to a column of Xs.

Because prices must reverse direction by the reversal amount, the minimum number of Xs or Os that can appear in a column is equal to the "reversal amount."

By Default the Chart FX Financial Extension sets a Box size of 5, non percentual and a reversal amount of 1.