Logarithmic Point & Figure
by Arthur A. Merrill, C.M.T.
In the June 1991 STOCKS & COMMODITIES, I described how a turning point could be measured by
filtering out minor market moves. The same filtering technique can be used to correct the failings of the
traditional point and figure (P&F) chart and upgrade it to logarithmic status.
The P&F chart, built on a filtering technique, is an old favorite. In a one point chart, moves of less than
one point are ignored or filtered out; in a three-point chart, all moves of less than three points are filtered
The idea here is great, but the chart makes the error of using points and not percentages. Points are a poor
measure of importance in a stock chart. One point can be very important in a $10 stock but be a very
minor move in a $100 stock.
Another limitation of the P&F chart is the use of an arithmetic scale. This scale has a built-in distortion.
A 5% move at the bottom of the chart may be completely hidden, while at the top of the chart it may look
like a major move. In an arithmetic chart, a trend rising at a uniform 10% per week seems almost flat at
the bottom but skyrockets up at the top of the trendline. A straight trendline on an arithmetic scale
actually has a reducing rate of rise in percent as you travel up the line. You've noticed how the scale
points get closer together as you rise on a log scale; this recognizes the shrinking importance of a point
and corrects the distortion of the arithmetic scale.