A Handbook of Technical Analysis: The Practitioner's Comprehensive Guide to Technical Analysis

CHAPTER 15

Point-and-Figure Charting

LEARNING OBJECTIVES

After studying this chapter, the practitioner and student should be able to:

• Understand the difference between Point-and-Figure charting and conventional bar charts
• Use volatility to filter out market noise to reveal the underlying trend
• Identify the advantages and disadvantages of using closing prices and high/low prices to determine box size
• Use Point-and-Figure charts to track market breadth and relative strength in the markets
• Identify precise buy and sell points on the various Point-and-Figure chart patterns

Point-and-Figure charting is essentially an exercise in reading pure price action. Volume and time are excluded and only price is observed, strictly for potential support and resistance levels. In this chapter, we will cover Point-and-Figure chart construction, minimum price projections, trade-related issues, and various Point-and-Figure forecasting techniques.

15.1 BASIC ELEMENTS OF POINT-AND-FIGURE CHARTS

As we saw in Chapter 4, there are four basic ways to plot price action on the charts, namely as:

1. Constant range bars
2. Constant time bars
3. Constant tick bars
4. Constant volume bars

Point-and-Figure charting is a form of constant range bars where each unit move in price is of a fixed or constant amount. Therefore each unit move in price is not dependent on the amount of:

• Time that has elapsed
• Volume that was traded
• Transactions that were made

As a consequence, there is no time axis on a Point-and-Figure chart. ...