What Is a Point-and-Figure (P&F) Chart?
Let me explain what a point-and-figure chart is: it's a tool that plots price movements for stocks, bonds, commodities, or futures, completely ignoring the passage of time.
Unlike candlestick charts that track price over specific time periods, P&F charts use columns of stacked X's or O's, where each symbol represents a fixed amount of price change. You'll see X's for rising prices and O's for falling ones.
As a technical analyst, you can still apply concepts like support and resistance or look for patterns on these charts. Many find that support and resistance levels stand out more clearly here because the chart filters out small price wiggles and avoids false breakouts.
Key Takeaways
- An X appears when the price rises by the box size amount, and an O when it drops by that amount.
- X's and O's stack in columns, often forming long series during trends.
- You set the box size based on the asset's price or your preference, sometimes using average true range for volatility adjustment.
- A new column starts when the price reverses by more than the set reversal amount, typically three times the box size.
How to Calculate Point-and-Figure (P&F) Charts
You don't need complex calculations for P&F charts, but you do have to set at least two variables.
First, decide on the box size—it could be a dollar amount like $1, a percentage such as 3% of the current price, or based on average true range so it adjusts with volatility.
Next, set the reversal amount, usually three times the box size; for a $1 box, that's $3, but you can choose anything from one to 5.5 times or more.
Optionally, choose whether to use high and low prices or just closing prices. Using highs and lows creates more X's and O's, while closings result in fewer.
What Does a Point-and-Figure (P&F) Chart Tell You?
These charts give you trade and trend signals that might differ from those on candlestick or bar charts. Some analysts use them primarily, while others combine them to confirm signals and dodge false breakouts.
The box size is crucial—it's the price move that adds a new X or O. For a $3 box, if the last X was at $15, a new one comes at $18.
Columns of X's continue as long as prices rise without hitting the reversal; the same goes for O's in declines. A reversal happens when the price shifts direction by the reversal amount, drawing multiple symbols at once—like three O's below the highest X for a three-box reversal.
You can watch for support and resistance, breakouts signaling trend changes, or column shifts indicating reversals or pullbacks, just like on other charts.
Point-and-Figure Analysts
Charles Dow, who founded The Wall Street Journal, developed P&F charting to spot supply and demand imbalances.
Tom Dorsey, a key figure in this area, started Dorsey, Wright & Associates in 1987 and wrote books like 'Point & Figure Charting: The Essential Application for Forecasting and Tracking Market Prices.' Nasdaq bought his firm in 2015.
Dorsey popularized combining P&F with indicators like moving averages, relative strength, and advance/decline lines.
The Difference Between Point-and-Figure (P&F) and Renko Charts
Renko charts also use box sizes, creating up or down bricks at 45-degree angles, but never side by side—a reversal needs two box moves in the opposite direction.
The big difference is appearance: P&F has side-by-side columns of X's and O's, while Renko spreads boxes out at angles over time.
Limitations of Using Point-and-Figure (P&F) Charts
P&F charts can lag in reacting to price changes; a breakout signal only comes after the price has moved the full box amount, which might be too late for some traders.
They reduce false breakouts, but these still happen, and what looks like a breakout can reverse quickly.
These charts keep you in strong trends by ignoring small counter-moves, but a reversal can wipe out profits or cause big losses due to the large reversal size.
To manage risk, monitor the actual asset price in real time—perhaps with a candlestick or OHLC chart—alongside your P&F analysis.
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