Point and Figure Charting Method

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<h1>Point and Figure Charting Method </h1><strong> Author: <a href='http://www.articleseen.com/profile_Fook Fun.aspx'>Fook Fun</a></strong><br /><p> Most people are already familiar with line chart, bar chart and candlestick chart. However, many are unfamiliar with Point and Figure chart. Line chart uses a simple line to join the points denoting the closing prices. It is simple and visually pleasing. Therefore, it is an excellent tool for communication to non-specialized audience. Bar chart and candlestick chart, on the other hand, use open, high, low and close prices in the construction. These full data allow analysts to better understand what is happening in the market. Gaps, islands, key reversals, chart patterns…etc. are among the interpretations analysts may derive from bar and candlestick charts. All three charts scaled prices on the vertical (Y) axis and time on the horizontal (X) axis. Volume is usually plotted as histogram below prices along the X axis. Box and Box Size Point and Figure charts are plotted on square-grid paper using high/low prices; each grid is called a ‘box’. Each box is assigned with a value (eg: 10 cents, 20 cents…etc. for stocks or 25 points, 50 points for indices) called ‘box size’. The vertical y-axis is for price whereas the horizontal x-axis is for the number of reversal. Point and Figure charts do not take time and volume into consideration. It is a pure price charting method that reflects uncontaminated supply and demand. Passage of time and volume has no impact on the chart. Market Wizards LLP X’s and Os • When demand exceeds supply (more buyers than sellers), stock prices rise. An ascending column of Xs on the chart depicts this. • When supply exceeds demand (more sellers than buyers), stock prices fall. A descending column of Os on the chart depicts this. Note that individual boxes will be filled only when stock prices rise completely through the box. For example, if the box size is 10 cents. A new box will be filled only when prices rise through 10 cents. Any value below 10 cents will not cause the box to be filled. Reversal Point and Figure chart uses asymmetrical filter rule for price reversal. Reversal refers to the process of changing from a column of Xs to Os or Os to Xs. The number of boxes required to change column is known as reversal size (it is usually 3 boxes although any other numbers are possible). That means, Point and Figure charts will not change direction (i.e.: from a column of Xs to a column of Os or vice versa) unless the price moves more than 3 boxes (or unit of price) in the opposite direction. Therefore, there can be no fewer than three boxes in a column. Naming Point and Figure Charts Point and Figure charts are named according to the ‘box size’ x ‘reversal size’ .If the box size is 10 cents (or 10 points) and the reversal size is 3-box. The Point and Figure chart is named “10x3”. 45 Trend line Unlike line chart, bar chart and candlestick chart where up trend line or down trend line are drawn by joining the successive troughs or peaks with at least 3 touches. Trend lines for Point and Figure chart are drawn at 45 from the top or bottom as soon as a high or low point is determined. The uptrend line is called the Bullish Support Line and the down trend line is called the Bearish Resistance Line. Basic Buy and Sell Signal When demand overcomes supply, the column of Xs breaks above the previous column of Xs. This is the most basic Point and Figure double-top (or triple-top) buy signal. Conversely, when supply outstrips demand, the column of Os breaks below the previous column of Os. This becomes the most basic Point and Figure double-bottom (or triple-bottom) sell signal. All other buy and sell signals or chart patterns are variation from the basic double or triple top and bottom buy/sell signals. Application of Point and Figure Chart on the Straits Times Index In late January 2011, The Straits Times Index (STI) was traded in a congestion zone of 3,180 ~ 3,220. While candlestick chart and bar chart were unclear about the future direction of STI, Point and Figure chart was able to provide an unambiguous view that the index was bearish and accurately forecasted the price objective of 2,975, which was met on February 24. Summing up Point and Figure Charts are often regarded as the ‘voice of the market’ due to the fact that it does not take time into consideration. The chart move only when market moves. Point and Figure Charts provide unambiguous buy and sell signals as well as price targets through the measuring techniques called Vertical Count and Horizontal Count. </p><strong>About the Author:</strong><br />Woo Fook-Mun CFTe MSTA is a <a rel="nofollow" href="http://www.marketwizards.com.sg/">Certified Financial Technician (CFTe)</a> accredited by the International Federation of Technical Analysts (IFTA). Fook-Mun is also a Full Member of the <a rel="nofollow" href="http://www.marketwizards.com.sg/technical-analysis-courses/">Society of Technical Analysts (STA)</a> UK.<p> Article Source: <a href='http://www.articleseen.com/Article_Point-and-Figure-Charting-Method_56555.aspx'> http://www.articleseen.com/Article_Point and Figure Charting Method _56555.aspx</a></p>

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