Point & Figure Charting

Point & Figure Charting, also referred to as P&F Charting, has been around since the 1800's. According to resources, Charles Dow was the first individual to record stock price movements and created a method of analysis called "Figuring". Figuring eventually became to be known as Point & Figure Charting.

P&F Charting is an easy, yet powerful form of technical analysis that tries to gauge supply and demand for a stock.

P&F Charts try to simplify the charting process by eliminating most of the nominal fluctuations of a stock's share price, allowing investors who utilize these charts to focus on the larger trend at hand.

By eliminating nominal price movements, P&F Charts try to eliminate what they refer to as "market noise" (shorter-term price fluctuations). P&F Chart Patterns can also be excellent price predictors.

With all these benefits for P&F Charting, why not solely use P&F Charting? Well, the drawback to using P&F Charts is that they are not able to provide is an approximate timeframe of when its calculated price objective will be met. That means that you could be sending your money to die in the graveyard for several months rather than working for your benefit.

P&F Chart Example

Let's take a look at an example of a P&F Chart for Apple (AAPL). Since the column on the far right side of the chart is a column of X's, which indicates means that Apple's share price is currently in an uptrend. The setting for this P&F Chart are based on the closing share prices for Apple.

A Standard 3 Box Reversal Point & Figure Chart for Apple (AAPL) Based on Closing Share Prices

When I tweaked the settings for AAPL's chart and switched from closing share prices to intra-day share prices, the P&F Chart calculated a $134 price objective instead of the $166 price objective illustrated above. It is very common for the  price targets to vary between the closing and intra-day share price setting. It doesn't hurt to look at both.

Reading P&F Charts

P&F Charts provide a different perspective than candlestick charts or bar charts since they use a series of X's and O's to indicate the changing share price for a stock.

For those that are unfamiliar with P&F Charting, start by looking to the far right side of a P&F Chart. Determine if the last column on the right side of the chart contains a series of X's or O's.

• A column of X's indicate that the share price is increasing and currently trending upwards (like Apple's share price above)

• A column of O's indicate that the share price is decreasing and currently trending downwards

Here is a quick explanation of how to read Apple's chart in the above example for those that are not familiar with P&F Charts.

• In the upper left-hand corner of the P&F Chart heading is the stock's, name, ticker symbol and a snapshot of the date when P&F chart was created
• Next, the chart lists any recognizable patterns that are forming on the P&F chart; this is an Ascending Triple Top Breakout for Apple
• After the P&F Pattern, the chart displays the chart settings that were used to display the current chart
  • Until you become more familiar with P&F Charting, I would recommend staying with the default settings, which should read "Traditional [Reversal 3]"
• And last is the price objective for the P&F Chart pattern; for Apple, its Closing P&F Chart suggests a bullish price objective of $166
  • When Apple's  setting is switched to high/low share prices instead of closing share prices, the price objective changes to $134 instead of $166

P&F Charts can be customized for different styles of traders (short-term, long-term) by manually changing a setting on the chart called the "Box Size". As the share price for a stock climbs, the "box sizes" on the P&F Charts increase in size as well.

For example, when the share price of a stock is in the $1 - $100 range, the box size for the P&F Chart is $1. When the share price is in the range of $101 - $200, the box size increases to $2. When the share price is above $200, the box size is $4. Box sizes continue to increase along with increasing share prices.

A trend will not change from a column of X's to a column of O's unless the stock's share price drops by 3 "boxes". This is meant to eliminate any small price drops and "immaterial" fluctuations in price.

Looking at a P&F Chart can give you a pretty quick indication of whether the stock is currently trending upwards or downwards in price by simply looking for a column of X's or O's.

P&F Chart Patterns

Just like how trendlines can form into chart patterns, the X's and O's that make up P&F Charts also form into recognizable patterns; these patterns have excellent predictive powers for future price objectives. So even with P&F Charting's weakness of not being able to predict when a price target may be reached, it is still a technical analysis method to consider when analyzing a stock's chart.

Join Trendy Stock Charts

Does Point & Figure Charting sound intriguing to you? Learn all about "figure" charting and how to interpret its X's and O's. Point & Figure charting has its own set of patterns when analyzing its unique X & O chart.

See how I use Point & Figure charts to confirm price targets that I've calculated using other methods of technical analysis.

When you become a Trendy Stock Charts member, Point & Figure Charting is just one of the technical analysis methods discussed in the Idea Chamber (the members-only private forum).

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