The aim of this chapter is to present a review of the basic concepts and applications of point and figure charting to trading markets.
Point and figure charting represents the final chart type in our discussion of alternative charting. Like price break charts and Kagi charts, this chart type's origins precede the age of the computer. It is the only alternative chart type whose origin is in the West. In recent years, Thomas Dorsey has been a notable leader in applying point and figure charts to analysis of price movements. Jeremy Du Plessis, in the preface to The Definitive Guide to Point and Figure (Harriman House), states:
[A]nyone wishing to practice technical analysis of the markets should be fully conversant with [point and figure charting]. [It] may be the oldest method of charting the market in the Western world, but that does not mean [it] should be ignored in our modern world. On the contrary, once you understand more about [it], you will wonder how you survived without [it].
Point and figure charts work in the following way: When a price exceeds and closes at a predetermined distance up, it gets an X posted. If it reverses by three times the value of a prescribed number, it gets an O column. If a price exceeds a predetermined distance down, it gets an additional O posted, and if it reverses by three times the value of a prescribed number, it gets an X column. In point and figure charting this is known as a ...