What is Point&Figure charting?
Where did it come from?
How is it Created & Updated?
Why is it So Important ?
- Back in the 1800’s Charles Dow (founder of Technical Analysis) found another way to organize data and record price movements called the Figuring method that eventually led to the point and figure method that we know and use today.
- However kept developing ever since to be the most straight forward, logical method to record the imbalance of Supply and Demand and hence it’s charts created the clearest Roadmap for traders and investors to depict this never-ending battles of Supply & Demand
How are P&F charts created and updated?
Records price change by direction. First thing we must assume any direction (up or down doesn’t matter) to start recording.
- An upward move is referred to by X’s
- A Downward move is referred to by O’s
In other words; X’s represent Demand and conversely O’s represent Supply
Since P&F charts have no time axis, the first move of every month is recorded by the number of the month (no matter which side / column the move comes in). Oct, Nov & Dec are referred to by A,B & C respectively. Check the example below
Why Point&figure charts Became A Game changer?
- A unique method to summarize & demonstrate data movements as it only updates when there’s a change in price or value.
- The only chart that enables you to instantly see whether Supply (O’s) or Demand (X’s) is in control at any point.
- The clearest and easiest method to spot simple Buy & Sell Signals and Trends. Also common patterns & formations. Traders love
- Cuts off the noise by it’s 3 point or box reversal theory. This discounts irrelevant fluctuations and only shows significant moves in the chart.
- Trend-lines are always 45 degrees so extremely easy to spot or follow.
- It’s digital / binary nature given by its solid figures on a box grid (Unlike line graphs that are mostly analogue in nature) allow it to be contained and eligible to programming a logic based algorithm with ZERO human intervention. Like we did with iDRS
Simple Signals, Trendlines & Basic Formations
A simple BUY signal
- Price breaks a Resistance Point/level. When a column of X’s break a previous column of X’s that’s considered a simple buy signal. Demand is in controlPrice breaks a Resistance Point/level. When a column of X’s break a previous column of X’s that’s considered a simple buy signal. Demand is in control
A simple SELL signal
- Price breaks previous Support level. Conversely when a column of O’s breaks the previous column of O’s that’s considered a simple Sell signal. Supply is in control
Why are they called simple signals? Because simply as explained earlier; your buy/sell decisions should be taken with several signals combined. Example if a real estate company’s stock gave a simple buy signal, while the real estate sector index shows weakness and the last signal shown on this index chart was a sell signal. You shouldn’t buy the stock until the sector improves. Another example; the stock is good, the sector is good but the market is bad. Same principal applies. Remember the top-down or bottom-up approach; explained earlier. Nothing guarantees success but it helps when you stack the most odds in your favor before taking an investment decision
In P&F charts Trend Lines are always 45 degrees
Only 3 directions any chart can go
- Sideways / Flat / No trend
Ultimately all stocks (any price moving underline) pass through every stage. The time span taken differs due to the price sensitivity of the underline. Some can take years, others can change direction every couple of days, hours or even minutes.
Some common formations you shall know
The Triangle Formation
- Takes 5 columns or more to bee formed
- Columns converge into a triangle between the up/down trend lines.
- Usually followed by an aggressive breakthrough move in either direction