- Point and figure chart
A point and figure chart is used for
technical analysisof securities. Unlike most other investment charts, point and figure charts do not present a linear representation of time. Instead, they show trends in price.
The aim of point and figure charting is to filter out the "noise" (unimportant price movement) and focus on the main direction of the price trend.
Point and figure charts are usually used for longer term price movements. Having said that they can be used to day trade by clearly identifying the key points of supply and demand. They are very effective at keeping you on the right side of the market. Point and figure charts can do a really good job to spot very good trading opportunities on a trade and trend market. Point and figure charts are close relatives to three line break, renko and kagi charts which all do not have a fixed timeframe. This makes you trade only the important moves of the market, minor moves are discarded because of the limited gain potential. If you want more information about Japanese reversal charts have a look at the website of market tide [http://www.markettide.com Website Market Tide]
There are two typical ways to plot point and figure charts - using closing prices, or with high/low prices. The most common method nowadays is high/low prices of a specific timeframe normally daily prices. The close (EOD) method was used until 1947 when A.W. Cohen invented a different system to work with point and figure charts using high/low prices. A.W. Cohen also invented in 1955, while working for Chartcraft, the bullish percent indicator BP a tool to gauge the market breadth of a specific market or index. Today, Chartcraft is Investors Intelligence [http://www.investorsintelligence.com Website Investorsintelligence] . He used for the calculation of the BP high/low prices of the day due to the fact he invented the high/low system on point and figure charts. But it is also possible to calculate the BP with close only prices but the outcome are two different BP charts. Closing prices are useful when charting price movement for funds or suchlike where there is no real way to get the intraday prices for that fund. But we can use the close only prices also for every kind of market because sometimes the intraday movement of prices can be confusing. If you take into account that point and figure charting in the last part of the 19th century and the first part of the 20th century was used to record price movement of tick charts the close only price would be one tick to be specific our last tick for the trading day.
Thomas Dorsey is a very prominent advocate of the point and figure chart technique and he has written a very interesting book on the subject. He has a very good BP data service available on his website at a very competitive pricing which we can find at [http://www.dorseywright.com Dorsey, Wright & Associates] . Dorsey also has a free of charge service to go to the point and figure university you only have to register to use this service. To understand point and figure charting this is a very effective tool. To wrap up the things you have learned in the university every chapter has a little test. There is also available a free excerpt of one of Thomas Dorsey,s Books on point and figure charting to download at [http://eu.wiley.com/WileyCDA/WileyTitle/productCd-0471412929.html Book] . But also the UK, Australia and Germany is a good place to be as a point and figure chartist. A good point and figure software you can find at archeranalysis in Sydney [http://www.archeranalysis.com Website Archeranalysis] which is called "bull, s eye broker" . Bull, s eye broker has the possibility to build your own BP charts and indexes. Also you are able to build with bull, s eye relative strength charts which can be a very good indicator used as a point and figure chart. But for this you should use the normalised relative strength because the box sizes are whole numbers instead of decimals. On the other hand in Germany you will find tradesignal [http://www.tradesignalonline.com Website Tradesignal] with an excellent free of charge point and figure software called tradesignal express. You can use this software conveniently with your web browser. We also have to mention Jeremy Du Plessis for his latest outstanding work on point and figure charting. He was back in the 1980,s one of the first persons worldwide to print point and figure charts with the computer and with this help is was much easier to track numerous stocks at the same time (a laborious task using a pencil and graph paper), thus helping to speed up the analytical process dramatically. His indexia software was the state of the art at this time not only in South Africa, but it is advisable to construct charts with graph paper first to get the feel for this charting technique. A very good website for point and figure charting is stockcharts [http://www.stockcharts.com Website Stockcharts] where you can find free point and figure stockcharts as well and some basic tutorials. For German natives you have the website of the german bull,s eye broker version at [http://www.tradersecke.net Website Tradersecke] with a very good forum community in german language. For the spanish speaking world there was no real site available on point and figure charting at all. There are only a few spanish speaking traders worldwide who use point and figure charts for their trading. This changed recently with the contribution of a real point and figure trader who lives in spain, and wants to extend and share knowledge about this exciting chart technique. You can find his spanish language website at [http://www.puntoyfigura.net PuntoyFiguraPuntoNet] which has a very interesting free of charge weekly trading diary in spanish language. The website punto y figura also provides the official spanish language version of the bull,s eye broker charting software from archer analysis in sydney australia. Now there is an english version of the point and figure charting trader available at [http://www.pointandfigure.net PointandFigureDotNet]
Point and figure charting is said to have had its origins in the US during the early 1900s and with the first book appearing to by deVilliers, V. (1933), The Point & Figure Method of Anticipating Stock Price Movements showed that these charting technique was already known by insiders and stock traders. Point and figure charts where already there in the trading rooms for the purpose to record daily tick movements of stocks when Charles Dow was beginning to create his famous index. Numerous books have been written during the 20th century though limited work has appeared in the more rigorous refereed academic journals. Some of these works include:
** A.W. Cohen - How to Use the Three-Point Reversal Method of Point & Figure Stock Market Timing first edition 1947 - Out Of Print
** A.W. Cohen - The Chartcraft method of point and figure trading - A technical approach to stock market trading
** A.W. Cohen - Technical indicator analysis by point & figure technique
** Michael L Burke - All New Guide to the Three-Point Reversal Method of Point and Figure, 116 pages, ringbound, ISBN 99931-2-861-9, or look [http://books.global-investor.com/books/0927.htm?ginPtrCode=21624 Website Global Investor]
**Anderson, J.A. and Faff, R. - Point and Figure Charting: A Computational Methodology and Trading Performance in the S&P 500 Futures Market’, International Review of Financial Analysis (Forthcoming, 2006)
**Anderson, J.A., 2004. P&F Charting - Computational Method and Distributional Forms, chapter in 'Computational Finance & Its Applications', Witpress, UK
**Hauschild, K. and Winkelmann, M. (1985), Kapitalmarketeffizienz und Point and Figure Analyse, Kredit Und Kapital, 18.
**Stottner, R. (1990), - P&F-Filteranalyse, Averaging-Strategie und Buy&Hold-Anlageregel, Jahrb. f. Nationalok. u. Stat., 207.
**Carroll D. Aby, Jr. - Point & Figure Charting: The Complete Guide, ISBN 0-934380-30-9
**Thomas J. Dorsey ´Point and Figure Charting - The Essential Application for Forecasting and Tracking Market Prices, 2nd Edition, ISBN 0-471-41292-9
**Thomas J. Dorsey - Tom Dorsey's Trading Tips - A Playbook for Stock Market Success, ISBN 1-57660-077-7
**Thomas J. Dorsey - Sicher anlegen mit Point und Figure. Klare Signale mit einfachen Methoden, ISBN 3-932114-38-8
**Victor de Villiers and Owen Taylor - The Point and Figure Method - of anticipating Stock Price Movements, ISBN 1-883272-83-1
**Victor de Villiers - The Point and Figure Method - of anticipating Stock Price Movements - A reprint of the 1933 edition including a chart on the 1929 crash, ISBN 0-930233-64-6
**Devilliers, Victor Taylor - Devilliers & Taylor On Point And Figure Charting, ISBN 0-273-64975-2
**Michael Burke - All New Guide to the Three-Point Reversal Method of Point and Figure Construction and Formations, ISBN 99931-2-861-9
**Heinrich Weber and Kermit Zieg - The Complete Guide to Point and Figure Charting: The New Science of an Old Art, ISBN 1-897597-28-2
**Kermit Zieg - Point and Figure Commodity and Stock Trading Techniques Also Options Bonds International Currency Indices, ISBN 0-934380-38-4 or look [http://www.traderspress.com Website Traderspress]
**Jeremy Du Plessis - The Definitive Guide to Point and Figure,A Comprehensive Guide to the Theory and Practical Use of the Point and Figure Charting Method, ISBN 1-897597-63-0 or look [http://www.harriman-house.com/pages/book.htm?BookCode=21822 Website Harriman House]
**Marc Rivalland - Marc Rivalland on Swing Trading - 214 pages, paperback, ISBN 1-897597-19-3 or look [http://www.harriman-house.com/pages/book.htm?BookCode=14705 Website Harriman House] and Marcs prive website [http://www.marcrivalland.com Website Marc Rivalland]
Wikimedia Foundation. 2010.