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.
Now the price movement starts to reverse in trend. 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.
Three "X"s indicated by the red box will be plotted on the 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. 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.
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. Bullish Signal 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.
Bearish Signal The diagram above shows a bearish signal. Notice each time, the trend goes downwards. The new low is lower than the previous low. Support 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.
Resistance 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.
The users can either copy-and-paste market data into the spreadsheets or download data automatically from http: Various parameters like Box Size and Reversal are also provided in the Professional version. Each "Box" in a Point and Figure chart is shown in the first column of the spreadsheet. Spaces above and below the range of prices that the stock is trading in are also provided in case the chart is going to be further used for plotting manually.
There are many investors and traders who enjoy plotting the charts manually to get a better feel of the market instead of just looking at the chart. Various parameters about the stock and dates for downloading data are described below.
Daily, Weekly or Monthly. Download and Chart button- Download the stock data and generate the Point and Figure Chart in in the "Output" worksheet. Box Sizes and the Number of Boxes Before Reversal as explained in the previous sections can be configured in the Professional version of the spreadsheet.
Upon clicking on the Download and Chart button, data will be retrieved from the http: The data in the "DownloadedData" worksheet is then used to plot the Point and Figure chart in the Output worksheet as shown in the diagram below. Using external market data Instead of downloading data automatically, the user can choose to use existing market data with the PointAndFigureCharting. Next go to the Input worksheet and click on the "Chart" button.
The Box Size and Number of Boxes before Reversal can be configured in the professional edition of the spreadsheet. Download Free Point and Figure Charting spreadsheet - v2. It's a big help with what I'm doing, and I havn't found much else available that's anywhere near as easy to use. Go to Technical Analysis Software.More...