Logarithmic point and figure charts
by Luis Ballesca Loyo
During the early development of technical analysis, almost all types of graphing methods used the
arithmetic values of prices for charting. Not so long ago, it became a common practice to construct charts
or graphs using a logarithmic scale. Experience has shown me that this proportional scale has many
advantages over the arithmetic method when it comes to analyzing price formations and market
Actually, using point and figure charting clearly shows the difference between graphing on the arithmetic
scale and graphing on logarithmic scale. When using an arithmetic scale as in Figure 1, every X and O
corresponds to an equal, nominal amount of change in price. That is, every X and O represents an equal
change in dollars.
When using a logarithmic scale, we chart the proportional, not nominal, change in price. However, by
charting proportional variations in price change, we face the problem of having to change the scale often
to maintain proportionality. This is a tedious and nearly impossible task, though some interesting
variable-scale strategies have been developed.
To overcome this proportionality problem, I chart the values using a proportionality criteria for the box
size and reversal patterns, as shown in Figure 2. This way, every X and O corresponds to an equal and
proportional change in price. That is, every box represents an equal percentage change.