Chapter: 13 Technical Analysis (Charting)

Section: 5 Point & Figure Charts

This type of chart is somewhat rare, in fact most charting services do not even offer the point and figure chart. This is a chart that plots day-to-day increases and declines in price. Increases are represented by a rising stack of X's while decreases are represented by a declining stack of O's. These types of charts were traditionally used for intraday charting (a stock chart for just one day), mainly because it can be long and tedious to create P&F charts over a longer period of time manually. The idea behind P&F charts is that they help you to filter out less-significant price movements and let you focus more on the most important trends. Point & Figure charts display an "X" when prices rise by the "box size" (a value you specify) 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. Each column can contain either Xs or Os, but never both. An example is illustrated graphically as follows:



Point & Figure ("P&F") charts differ from traditional price charts in that they completely disregard the passage of time and only display changes in prices. Rather than having price on the y-axis and time on the x-axis, P&F charts display price changes on both axes. This is similar to ‘Kagi’, ‘Renko’, and ‘Three Line Break charts’. Point & Figure charts display the underlying supply and demand of prices. A column of Xs shows that demand is exceeding supply (a rally); a column of Os shows that supply is exceeding demand (a decline); and a series of short columns shows that supply and demand are relatively equal. There are several chart patterns that regularly appear in P&F charts. These include Double Tops and Bottoms, Bullish and Bearish Signal formations, Bullish and Bearish Symmetrical Triangles, Triple Tops and Bottoms, etc.