Point & Figure charts display trend reversals in security prices.

• Point & Figure Charts

  On these charts, an X shows an increase in price and an O shows a decrease in price. A new column is started each time a trend reverses. You can control the sensitivity to trend reversal by defining the box size and reversal figure.

  The box size is the smallest price move that will draw either an X or an O. (Xs and Os are not drawn if the price changes by an amount less than the box size.) For instance, if you define a box size of 0.1, then:

  • Every time the security price rises by 0.1, an X will be drawn.
  • Every time the security price drops by 0.1, an O will be drawn.

  The reversal figure is the number of boxes necessary to reverse a trend. For instance, if you define a box size of 0.1 and a reversal of 4, then the price has to move by 0.4 in the opposite direction of the current price trend before a new column is drawn.

  The advantage of using Point & Figure charts is that they eliminate insignificant price movements and highlight the underlying supply and demand of a security.

  • A series of short columns shows that the degrees of supply and demand are similar.
  • A column of Xs shows a rally in the security. That is, demand is greater than supply.
  • A column of Os shows a decline in the security. That is, supply is greater than demand.