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Point
& Figure
Description
Point
& figure (P&F) charts differ from
"normal" price charts in that they
completely disregard the passage of time and only
chart changes in prices.
Rather than having price on the y-axis and
time on the x-axis, P&F charts display price
changes on both axes.
P&F
charts display an "X" when prices rise
by the "box size" and display an
"O" when prices fall by the box size.
Note that no Xs or Os are drawn if prices
rise or fall by an amount that is less than the
box size.
Each
column can contain either Xs or Os, but never
both. In
order to change columns (e.g., from an X column to
an O column), prices must reverse by the
"reversal amount" multiplied by the box
size. For
example, if the box size is 3 points and the
reversal amount is 2 boxes, then prices must
reverse direction 6 points (3 times 2) in order to
change columns. If
you are in a column of Xs, the price must fall 6
points in order to change to a column of Os.
If you are in a column of Os, the price
must rise 6 points in order to change to a column
of Xs. The
changing of columns signifies a change in the
trend of prices.
Because
prices must reverse direction by the reversal
amount, each column in a P&F chart will have
at least "reversal amount" boxes.
When
in a column of Xs or Os, MetaStock
Pro will first check to see if prices have
moved in the current direction (e.g., rose if in a
column of Xs or fell if in a column of Os) before
checking for a reversal.
MetaStock
Pro uses the high and low prices to decide
if prices have changed enough to display a new
box.
Indicators
calculated on P&F charts use all the data in
each column and then display the average value of
the indicator for that column.
Interpretation
P&F
charts are designed to display the underlying
supply and demand of a security.
A column of Xs shows that demand is
exceeding supply (a rally); a column of Os shows
that supply is exceeding demand (a decline); and a
series of short columns shows that supply and
demand are relatively equal.
There
are several chart patterns that appear repeatedly
in P&F charts.
These include Double Tops and Bottoms,
Bullish and Bearish Signal formations, Bullish and
Bearish Symmetrical Triangles, Triple Tops and
Bottoms, etc. It
is beyond the scope of this website to fully
explain all of the possibilities. |
