V.6:9 (328-329): Intraday trading techniques by John W. Labuszewski and John E. Nyhoff

Intraday trading techniques by John W. Labuszewski and John E. Nyhoff

Many analysts find that the charting techniques that they rely on for inter-day trading are somewhat less useful on an intraday basis. As a result, these analysts often rely on other charting methods, including point and figure charting and "pivot point analysis."

Point and figure charting

Point and figure charting is a frequently referenced charting technique which may be used to plot price fluctuations on an interday or an intraday basis. For our purposes, however, we will restrict our consideration to intraday data.

Point and figure charts are characterized by a series of Xs and Os arranged in columns (Figure 1). The Xs represent price advances while Os represent price declines. Point and figure charts are considered useful because, if properly constructed, they filter out spurious price fluctuations. Because of this intrinsic filtering mechanism, the chart does not provide full information with respect to all (or at least small) price fluctuations. Nor does it provide any information with respect to the time at which particular fluctuations took place.

Let us consider how one might construct a point and figure chart and interpret it. One begins a point and figure chart with a piece of graph paper showing a series of columns and rows. The next and most critical step is to identify one's "box size" and "reversal" criterion.