What are Point and Figure (P & F) Charts?
They are stock charts used in charting and study of chart patterns in technical analysis. These charts disregard the passage of time and the chart changes only when the price changes.
Rather than having price on the y-axis and time on the x-axis, these charts display price changes on both axis.
This technique is over 100 years old. A detailed history can be found in The Definitive Guide to Point and Figure: A Comprehensive Guide to the Theory and Practical Use of the P and F Charting Method written by Jeremy Du Plessis.
He explains that they were first described in a number of books between 1898 and 1910, but the first book dedicated to it was published in 1933 by Victor De Villiers.
These charts were automated by computer in the early 1980s by the Indexia company run by Jeremy Du Plessis. This automation increased the popularity and usage of these charts
These are constructed by adding X and Os. Although the time factor is one of the important data in technical analysis, It is not considered in these charts.
Time is also not considered in Swing Charts and Kagi Charts and it is less regarded in Equivolume Charts.
The chart changes only if the price changes by a minimum predetermined fixed amount called 'box size'. They display an 'X' one above the other, when prices rises by the box size and display an 'O' one below the other, when prices fall by the box size. No change is made, if prices rise or fall by an amount that is less than the 'box size'.
The X and Os are arranged in columns. Each column can contain either Xs or Os, but never both. In order to change columns that is from an X column to an O column and vice versa, 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 by 6 points (3 times 2) in order to change columns.
If the prices are in column of Xs, the price must fall 6 points in order to change to a column of Os. Similarly if the prices are in 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 and F chart will have at least "reversal amount" of boxes.
Indicators calculated on Point and Figure charts use all the data in each column and then display the average value of the indicator for that column.
Study the Point and Figure chart given below and compare it with the bar chart.
Click on these charts to see bigger charts.
This P & F chart has a Box Size of 25 with Reversal Amount of 2
Compare this Bar Chart with the P and F chart above.
Both the above charts belong to the same stock and same time period.
There are many types of charts used in stock analysis. You may click on the name of each chart listed below to learn and understand more about them.