Point and Figure Charting

[kittydashwood]

WOW!
Anybody out there use P&F charts for the ASX?

From http://stockcharts.com/help/doku.php...ing_pnf_charts

Point & Figure charts consist of columns of X's and O's that represent filtered price movements over time. Their distinctive look may be alien at first to people who are more familiar with traditional price bar charts but once people learn the basics of P&F charts they usually become hooked.

There are several advantages to using P&F charts instead of the more traditional bar or candlestick charts. P&F charts automatically

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Eliminate the insignificant price movements that often make bar charts appear 'noisy,'
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Remove the often misleading effects of time from the analysis process,
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Make recognizing support/resistance levels much easier,
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Make trend line recognition a 'no-brainer',
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Help you stay focused on the important long-term price developments,

After briefly discussing the history of P&F charting, we'll talk about how to construct a P&F chart by hand. Then we'll discuss how to interpret the most common P&F chart formations.
History

Point & Figure chart analysis has been popular for a very long time. Part of its original appeal was that it was very simple for someone to maintain a large collection of P&F charts back in the days before computers. In less than an hour, using just a pencil, a newspaper and some graph paper, P&F chartists were able to update and analyze 50 or more charts every day. When computers arrived, they made it much easier to create bar charts and P&F charts started to fade in popularity. Recently however, as investors look for better ways to select stocks, Point & Figure charting has been 'rediscovered' and is once again growing in popularity.

This classic paper and pencil-based method was largely put aside as technology made charting easier, and charts became flashier. Now StockCharts.com has reintroduced the Point & Figure chart, adding a dynamic interface that gives you control of the variables.
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[kittydashwood]

Kevin Depew
Sep 11, 2003 2:36 pm

http://www.minyanville.com/articles/index.php?a=2392

This afternoon a Minyan asked a great question: “Kevin, what exactly is a point and figure chart, anyway?” Because I work with them every day I tend to forget that point and figure charts are not as intuitive as, say, bar charts. Actually, I remember when I first saw a point and figure chart and it looked like the craziest mess of Xs and Os that I’d ever seen. In fact, I remember thinking that I would never give up bar charts for those crazy X and O things. Well, never say never. While the market is busy showing more style than substance (buy and sell signals are few today and near even in number) I want to take some time to go over point and figure basics.

The basic point and figure chart shows a column of Xs, which simply indicates the stock is rising and a column of Os, which means the stock is falling. Put in simple supply/demand terms, Xs mean demand is in control, Os mean supply is in control.

Columns of Xs and Os alternate back and forth -- they never appear in the same column. Remember, point and figure charts move according to significant price action, not time. For the first action taken in a month, a number or letter is used to designate that particular month. This is how we show the time on the chart and it's used more as a marker or timeline than to suggest anything important about the action itself.

We use the three-box reversal methodology of charting. This means that it takes 3 boxes to reverse from one direction to the other. For example, if a stock were trading in a column of Xs with a top of 45, it would take a move to 42 to reverse this chart to a column of Os. Going in the other direction, if a stock were trading in a column of Os with a current low at 45, it would need a rally to 48 to reverse the stock back to a column of Xs. I say three boxes, instead of points, because the box size is determined initially by the price of the stock.

Units of Charting :
0 - 5 = 1/4 point per box
5 1/2 - 20 = 1/2 point per box
21 - 100 = 1 point per box
102 – 200 = 2 points per box
200 + = 4 points per box

These initial box sizes are simply guidelines. It is often helpful to expand or contract the box sizes to gain a different perspective on the chart; similar to the way a barchart can be viewed in terms of monthly, weekly, daily, etc. activity.

We plot the chart based on the high and low of the day, not the closing price. While the closing price can be significant, it can also simply be the last transaction of the day; in other words, sometimes a cigar is just a cigar. The high and low is a better descriptor of what the chart is representing.

To recap our initial lesson:
· Xs mean the stock is rising; demand is in control
· Os mean the stock is falling; supply is in control
· We use the three-box reversal method, which means each column must have at least three Xs or three Os
· Never will you see an X in a column of Os or an O in a column of Xs
· We chart based on the high and low

As I mentioned before I do look at other types of charts, but for most of my decision-making I rely on the point and figure chart. A point and figure chart has both advantages and disadvantages. Advantages include the fact that it is easy to quickly evaluate a stock on a point and figure basis, noise is eliminated and only significant price movements are recorded, trend lines are easy to draw and identify, and price targets are simple to calculate. Disadvantages include the fact that gaps are not recorded and that time and volume is not a consideration. But those disadvantages, in my opinion, are easy enough to overcome with the addition of those tools. In the old days, before fast computers, this was more of a problem, and consequently technicians were more inclined to specialize in certain charting techniques and specific types of analysis.

Next lesson we’ll look at a simple flow chart that helps us determine how to chart a stock price in the point and figure methodology.

[kittydashwood]

SUPER PF charts today
http://www2.barchart.com/
gives a P&F chart for every stock on NYSE, NASDAQ and AMEX

[airedale]

Hi Kitty, I use Incredible Charts and they do P&F charts as a built-in option.

[kittydashwood]

P&F charts are a very good second opinion as they offer a very clear picture of price movement. They work very well with volitile trading ranges and help you set better stops.
Some of my best trades this year I have held through momentum lapses that would have normally had me out of the stock.
I wonder if they work of forex and cash rates?

[arco]

KittyD

I personally keep EOD P & F charts for a few currency pairs and they are probably of use for longer term trading if you can maintain a wider stop.

regards - arco

[peat]

how do you do that Arco?

[arco]

Hi Peat

Basically like this



Its a very slow business.....until support or resistance breaks

regards - arco