Chapter 15

Ignoring Time: Point-and-Figure Charting

In This Chapter

Figuring out point-and-figure charting

Looking at patterns

Taking a look at breakouts

Using point-and-figure with other indicators

Point-and-figure (“P&F”) charting strips away time and displays only significant prices on the chart. Significant prices are those that exceed the high or low of a recent trading range by a specified amount. You ignore minor moves — literally. You don’t even record them on your chart. The result is filtered price action. You don’t see a price move in the opposite direction of the current trend until it’s meaningful, according to a rule you set yourself, so that you can have confidence when a reversal signal is accurate.

You can also easily identify patterns on point-and-figure charts, especially support and resistance, and therefore, breakouts of support and resistance. Point-and-figure charts look very different from standard bar charts, but after you get used to them, you may find their directness and simplicity addictive.

remember.eps P&F charting emphasizes a shift in the price range as the basis of trading decisions, which is in keeping with the idea of measuring crowd behavior (see Chapter 3). The purpose of the display method is to filter out irrelevant prices to isolate the trends.

P&F analysis is suitable for trading that has a medium- to long-term holding period — weeks and months. The ...

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