Point & Figure (P&F) charting has a long history and known to be the oldest charting method. Though it is difficult to claim that any one person has invented it, the first reference to P&F came in 1898 from a writer named "Hoyle". The method is born out of necessity of recording the prices by the floor traders. There are evidences that Charles Dow used to plot the chart with this method then called 'Book Method'. P&F construction has traveled though various forms and called by several names during its long journey.
P&F charts were very popular before computers came in because it was simple to plot and maintain the large collection of charts. This classic paper-pencil based method was largely put aside as technology made other charting methods easier. But recently technicians are realizing the importance of the age old technique of timeless charting and there is a growing interest seen in P&F from all corners of the charting community. Point & Figure charts consist of columns of X's and O's that represent rising and falling prices respectively. P&F charts do not plot time and volume, they move only when price move. It filters insignificant market noise and focuses on what price is doing. The 3-box Reversal Method is the most popular P&F charting method. P&F patterns are very easy to find that filters out unnecessary data.
Simplicity and objectivity are major advantages of Point & Figure charts. P&F displays a larger picture of market and patterns are very easy to find out. They provide a simple, yet disciplined method of identifying current or emerging trends in market prices.
Objective trend lines (45 degree trends), Price projection techniques of Horizontal patterns & Vertical columns are unique advantages of P&F charts. Any kind of market or instrument, in all time frames can be traded solely through P&F charting techniques. It can also be used along with other methods for combination or confirmation.
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Basic Point & Figure signals
Double top buy and Double bottom sell patterns are basic Point & Figure chart formations. They are simple swing breakout formations and their usage depends a lot on the box-value and time frame. Simple trading systems can be designed on P&F charts using these basic signals.
Major advantage of Point & Figure charts is the unique method of constructing them that removes insignificant information from the data and brings objectivity and present a clear picture. It helps in reducing number of trades and helps in dealing with emotional trades or overtrading which is a major concern of discretionary trading.
There are more patterns and formations to learn once these basic signals are understood. These signals can be utilised to build systems and run scanners for filtering the stocks from the universe.
Below are the images of different P&F formations including basic patterns.
Double Top buy Signal
Basic buy signal: 3 column bullish pattern
Double Bottom sell Signal
Basic sell signal: 3 column bearish pattern
Triple Top buy Signal
5 column bullish pattern
Triple Bottom sell Signal
5 column bearish pattern
Catapult Buy Signal
7 column bullish pattern
Catapult sell Signal
7 column bearish pattern
Bull Trap
4 column bearish pattern
Bear Trap
4 column bullish pattern
Bullish Broadening Pattern
5 column bullish pattern
Bearish Broadening Pattern
5 column bearish pattern
High Pole Pattern
4 column bearish pattern
Low Pole Pattern
4 column bullish pattern
Double Top Buy after support
4 column bullish pattern
Double Bottom Sell after resistance
4 column bearish pattern
Rising Bottom Double Top Buy
4 column bullish pattern
Falling Top Double Bottom Sell
4 column bearish pattern
Rising Bottom Triple Top Buy
5 column bullish pattern
Falling Top Triple Bottom Sell
5 column bearish pattern
Diagonal Triple Top
5 column bullish pattern
Diagonal Triple Bottom
5 column bearish pattern
Bearish Pattern that reversed
6 column bullish pattern
Bullish Pattern that reversed
6 column bearish pattern
Bull Tap variation
6 column bearish pattern
Bear Trap variation
6 column bullish pattern
Long Tail down
Long Tail down is a column of 'O' with 20 or more boxes
Long Tail up
Long Tail up is a column of 'X' with 20 or more boxes.
Below is a list of Reference reading for further study on the subject.
