Point and Figure Charts

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.


History

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


How are Point and Figure Charts constructed?

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.


Point and Figure Chart for Technical Analysis in Stock Trading

This P & F chart has a Box Size of 25 with Reversal Amount of 2


Bar Chart for Technical Analysis in Stock Trading

Compare this Bar Chart with the P and F chart above.

Both the above charts belong to the same stock and same time period.




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Related Readings

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.

  1. Bar chart
  2. Bar charts also called as OHLC charts or open-high-low-close charts. They are used in charting and study of chart patterns in technical analysis. Each bar is a symbol created by connecting a series of price points, typically used to illustrate movements in the price of a financial instrument.

  3. Candle chart
  4. Candle chart or simply candlesticks charting is an ancient Japanese method of technical analysis. Candlesticks dramatically illustrate supply and demand concepts defined by classical technical analysis theories. Candlestick patterns not only display the absolute values of the open, high, low, and closing price for a given period in a format similar to the modern day, bar chart. But they also indicate trend continuation and trend reversal more clearly and more precisely.

  5. Candlevolume chart
  6. Candlevolume Chart combine the features of Equivolume charts and Candlestick charts. These charts have the wicks or tails and filled/unfilled body features of Candlestick charts, as well as the volume-based body width of Equivolume charts. This combination gives us the unique ability to study Candlestick patterns in combination with their volume.

  7. Equivolume chart
  8. Equivolume Charts display the relationship between price and volume in a bar. They presents a highly informative picture of market activity for stocks, futures, and indices. They differ from candlesticks by not considering open and close prices, and they differ from bar charts by not considering time factor.

  9. Kagi chart
  10. Kagi Charts differs from traditional stock charts, such as the Candlestick chart by being independent of time and volume.

  11. Line chart
  12. Line charts are created by connecting a series of data points together to form a line. This is the basic type of chart common in many fields.

  13. Renko chart
  14. Just like in Kagi chart & Point and Figure chart, Renko charts also disregard the time factor in X axis. These charts are similar to Three Line Break charts except that a brick (or a line) is drawn in the direction of the prior move only if a fixed amount of the box size has been exceeded. The bricks are always of equal in size.

  15. Swing chart
  16. Swing charts are also called as Gann charts because their construction is based on W.D.Gann's method of trading. These charts disregard time factor and does not consider opening and closing prices.

  17. Three line break chart
  18. Three Line Break Charts originates from Japan and gets its name from the default number of line blocks typically used. They use an up block (line), a down block (line) and a reversal block (line). These charts disregards the time factor, which is usually plotted on the X axis, in commonly used stock charts.




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