V.15:3 (116-121): On Building Point & Figure Charts by Daryl Guppy

On Building Point & Figure Charts by Daryl Guppy

Point & figure charting is one of the classic techniques of technical analysis. Here's a refresher look at the basics.

Point and figure (P&F) charting concentrates on price and its changes by eliminating other elements such as time and volume. Key chart features such as support, resistance and trendlines emerge clearly, suggesting entries based on breakout of trading ranges; risk management levels due to trendline breaks; and profit targets using counts. The technique is popular because it is simple. Point & figure charting uses price data with minimum manipulation, making the charts easy to draw by hand on paper or on a spreadsheet. The P&F chart can tell me if I’m wasting time in considering a trade. Like a pedestrian crossing light, it flashes instructions: walk, don’t walk; trade, don’t trade. The P&F approach works equally well with liquid and thinly traded stocks. In any time frame, the support, resistance and trendlines are very clear, so traders can use P&F to build a short list of the best trading opportunities. Some charting software use manipulated price information such as percentage differences between closes. The result may obscure the very essence we seek when we turn to P&F charting.