Point & Figure Charting
by Gary Van Powell
Point and figure charting, a technique for following stocks and commodities, may be simplistic but still
offers the keys to success: trend identification, price objectives and money management, all of which it
Using point and figure, also known as the price reversal method, is an excellent way to identify
reliable buy or sell signals for trading individual stocks. Point and figure charts are designed to remove
market noise, thus allowing the market participant to trade the real moves, leaving the insignificant
moves to the short-term traders. The noise is filtered out by plotting point and figure. This charting
technique requires less time to keep updated than do other methods.
Plotting a point and figure chart is straightforward. Here, we will use Xs and Os to graph price
movements. The scale for the vertical axis is known as the box size. For example, the box could equal
one point. As prices rise, place an X on the chart for each price rise equal to the box size chosen. To plot
a downtrend, plot an O for each price decline equal to the box size chosen.
To consider a movement on a point and figure chart a trend reversal — that is, a change from an up
market to a down market or from a down market to an up market — a change in price by a preselected
amount must occur. Typically, a three-point or three box reversal is used. As long as the price advance
does not reverse by three points (boxes), the uptrend is still intact. If the price does decline three or more
boxes, then the Os are entered in the next column, indicating the price movement downward.