- : November 21, 2021
- : B. Krishnakumar
How To Use Column Reversal?
Experienced practitioners of Point & Figure charts must be aware of the importance of the bigger box size. The problem with bigger box sizes is that one cannot trade based off those charts. The maximum most of us can consider is 3% box size.
Point & Figure is popular for its breakout style of trading opportunity. Almost all patterns are completed when a double top buy (DTB) or double bottom sell (DBS) is triggered. If the entry is on DTB or DBS, the risk is always going to be wide, especially in bigger box sizes.
Here is a simple tip if you want to manage your trade in 3% box size. It is in this context that the column reversal is a potent tool. Let us look at a practical scenario here. In the Relative Strength scanner, I checked for indices & sectors where a bullish turtle breakout was triggered in 0.25% box size.
The Nifty MidSmall Cap 400 index was the only index that qualified in the scanner. Now, I wish to take trades in the stocks from this sector based on a 3% box size. As stated above, if you choose an entry based on DTB or DBS (could be any pattern), your risk might not be affordable in many cases.
Instead of an entry on DTB or DBS, let us take an entry on a positive column reversal in 3% and where there is a bullish pattern in the smaller time frame. I have used the P&F Matrix to shortlist candidates where the performance score in 3% box is 0 and the Ranking score is a positive number.
Based on your risk profile, you can choose to ignore ranking score in 3% beyond a certain level. For example, you may choose to focus on those candidates where the ranking score is less than 12. This means you would be looking at candidates where there are 4 boxes of X in the last column in the 3% box size.
I filtered out the candidates where 3% performance score was 0 and the ranking score in 3% was less than 12. There were 52 stocks that qualified based on this filter. The second step is to filter those candidates whose performance score is either 0, 1 or 2 in 0.25% box size.
The idea here is to focus on bullish candidates in the smaller time frame. If the score is 2, then you can choose to take an entry at the current market price with a stop loss at DBS in 3%. If the score is 1 or 0, you can take a long trade on a DTB in 0.25% with a stop loss at DBS in 3%.
Here are some interesting candidates based on the above approach.
3. Tata Power
What we are trying to achieve here is to take trades with an affordable risk in 3% box size.
This is just an example and feel free to experiment. For example, you can filter positive column reversal candidates in 3% and save them as a group. Use the Pattern Counter feature and then shortlist your favourite stocks.
Hope this helps!