Point-and-Figure Charting Expert
Point-and-Figure charting is a technical analysis technique that uses a chart with "X"s and "O"s for predicting financial asset prices. The "X"s are used to indicate rising prices and "O"s to indicate falling prices. The Point-and-Figure chart is very unique as it does not plot prices against time like other technical analysis charts. Volume is also not taken into account, so it is basically a chart based purely on price movements. The diagram below shows a simple Point-and-Figure chart.
This chart and its associated techniques are more than a century old and are now used by many traders as part of their technical analysis toolkit.
In the diagram above, the "X"s indicate rising prices while the "O"s indicate falling prices. Notice that the "X"s and "O"s are always in different columns. Basically, each time the price changes by a certain amount in the opposite direction, it is plotted in a new column. If the price is moving in the same direction, it is plotted in the same column.
Plotting the Point-and-Figure Chart
To get a rough idea of how the chart is plotted, assume a stock is currently priced at $13 and the price is in a downward trend. The first price $13 is plotted in the diagram below as the first "O" marked by the blue box. The price then drop to $11.90 and the second "O" is plotted. The price drops further to $10.80 and then third "O" is plotted. Now the price movement starts to reverse in trend. It rises to $12. At this point in time, nothing is plotted on the chart. In a Point-and-Figure chart, a reverse in trend requires the price to rise by a certain amount. Let's assume for now that it requires the price to rise by 3 or more boxes before an "X" is plotted. Now if the price rises to $14.20. Three "X"s indicated by the red box will be plotted on the chart. If the price rises further to $15.10, the next "X" will be plotted.
There are two important parameters to take note of in the Point-and-Figure Chart. They are the Box Size and the Number of Boxes.
- Box Size
The size of the change in prices before plotting an "X" or "O" is plotted. By defining a box size, small changes in price are not reflected in the chart. This allows small fluctuations or noise to be filtered out from the chart. In the diagram and example above, the box size is set to $1. That means any increase or decrease by $1 will require an "X" or an "O". When plotting the Point-and-Figure chart, the direction of the price is always taken into consideration. For example, in an upwards trend, an "X" will be added if the price rises beyond the box size. In a downward trend, an "O" will be added if the price falls below another box size.
A typical box size for a stock trading from $1 to $5 is $0.50 while a stock trading from $5 to $20, it is $1.
- Number of Boxes for Reversal
The Number of Boxes for Reversal is used when the price changes in direction. In an upward trend, to plot an "O" of the reverse direction, it requires significant movement in the opposite direction before the trend is considered to have reversed. The number of boxes here is for specifying the amount (or the number of change in boxes in the reverse direction) before an "O" is plotted. For example, if we provide 3 as the Number of Boxes for Reversal, during an upward trend, it requires a negative change in price of 3 boxes before an "O" is plotted. This is the same for the downward trend. An increase in price equivalent to 3 boxes is required before an "X" can be plotted. When the reverse trend is met, three consecutive "X"s or "O"s are plotted. The reverse in trend is plotted in a new column.
The diagram above shows the price is initially in an upward trend. Then prices started to fall by 3 or more boxes. The three "O"s are thus plotted in a new column in the chart. This is where the beauty of Point-and-Figure comes into the picture. It takes several boxes to reverse a trend. That means only significant change in price movements is considered, other changes are treated as noise and ignored.
Some common patterns
This section illustrates some very common patterns traders use for predicting prices.
The diagram above shows a bullish signal. Notice each time the trend reversed to "X", the price went higher than the previous high. If a simple trend line is draw at the bottom of the "X"s, it shows an upward trend.
The diagram above shows a bearish signal. Notice each time, the trend goes downwards. The new low is lower than the previous low.
The red line in the diagram below shows the support line. If the price suddenly drops below the support line, it is a signal that there is a high chance that the trend has changed and the trader might want to consider selling the assets.
The green line below shows the resistance line. This is where an asset's price will encounter resistance as it moves towards the resistance line.
Point-and-Figure Charting Step by Step Tutorial
1. Start the Point-and-Figure Charting Expert
The Point-and-Figure Charting Expert can be started from the Windows Start Menu-> Programs -> TraderCode -> Point and Figure Charting Expert.
2. First, select the "DownloadedData" worksheet.
You can copy data from any spreadsheets or comma-separated values (csv) files to this worksheet for a point-and-figure chart to be generated. The format of the data is as shown in the diagram above. Alternatively, you can refer to the "Download Stock Trading Data" document to download data from well-known data sources such as Yahoo Finance, Google Finance or Forex.com for use in the Point-and-Figure Charting Expert.
3. Once you have copied the data, go to the "Input" worksheet and click on the "Chart" button.
The data in the "DownloadedData" worksheet is used to plot the Point-and-Figure chart in the Output worksheet as shown in the diagram below.
Advance Point-and-Figure Chart
The sensitivity of a stock price is different at different price points. In simple words, this means an asset typically moves by a different amount at different price points. For a penny stock, a tick may represent a movement of several cents. For a stock over hundreds of dollars, a tick may represent a movement of several dollars.
In a Point-and-Figure chart, a different Box Size value may be required for stocks of different prices. Moreover, a stock may move from over hundreds of dollars to a penny stock. Mechanisms are required to ensure their movements are accurately captured in the Point-and-Figure chart. This is easily achieved by using multiple Box Sizes in a single chart and is shown in the diagram below. The multiple Box Sizes feature is supported by the Advance Point-and-Figure Charting Expert.
In the diagram above, for prices from $5 to $20 the box size is $0.50 while from $20 to $100 the box size is $1. This is reflected in the first column of the Point-and-Figure chart as shown in the diagram below. Each box is of the size $1 when the price is equal to or more than $20. Below $20 the box size is $0.5.
Point and Figure Charting for FOREX
Though Point and Figure charting can be easily applied to FOREX, the movements of some currency pairs may require the support of a very small (or very large) Box Size.
The “forex” subfolder contains Point and Figure Charting spreadsheets that are able to support the following:
With the wide range of parameter values, the different currency pairs can be charted very accurately. On top of that, users using Excel 2007 and above will be able to chart more than 255 columns, to capture a long series of fluctuations in a single chart.
- Box Size – 0.0001 to 1000
- Number of Boxes for Reversal – 1 to 50
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