Point Figure

The above chart uses a box size of 2 ticks and a reversal of 5, which is equal to 10 ticks. It’s constructed from the same data as the previous chart and clearly demonstrates how noise is reduced, the fewer columns the less confusion. The support is still clear at 4206 in the second chart and even though the interim support at 4213 has disappeared the dominant resistance at 4218 is still evident.



ASX Charting Course
Chapter 51 Point & Figure Charts
There are two parameters required for plotting a point & figure chart, box size and reversal size. Box size refers to either a single price or a range of prices. Reversal size is the variation of price, the number of boxes, before a new column is started. Both parameters should be selected by the user. The charts are compiled using a series of columns made up of X’s and O’s. The X’s indicate a market rallying, price going higher, while the O’s signal a falling market, price moving lower.
Fig 92
The chart above has a box size of 1 and a reversal size of 5. The convention for starting a new column of X’s is that a new column begins one tick above the low of the previous column. This can only be plotted once the required number of price boxes, have been reversed. Conversely the O’s start after the required reversal and are plotted starting one tick below the high of the X’s in the previous column. The minimum number of X’s or O’s in the above chart is therefore four, given that we must leave the first price of the reversal uncharted. The second last column has only four X’s. The reversal started at 4213, but that price isn’t plotted. The X’s aren’t plotted until the market trades at 4217, five ticks or boxes above the low at 4213, including 4213. A point and figure chart has several advantages to a classic bar chart, the most obvious being that support and resistance are clearly defined. This is most probably a result of the reduction of, what might be referred to, as noise. Sometimes there can be just too many lines on the page. If the box size is increased, the noise can be reduced even further. This is a great tool for constructing longer term charts over wide price ranges. In fact, using daily data or even straight out tick data, one can construct the equivalent of a normal weekly or a monthly bar chart. Pit traders often employ point and figure charts as they can be maintained quickly and easily by hand. They divulge a lot of information in a format that is easy to interpret.
Fig 93
The above chart uses a box size of 2 ticks and a reversal of 5, which is equal to 10 ticks. It’s constructed from the same data as the previous chart and clearly demonstrates how noise is reduced, the fewer columns the less confusion. The support is still clear at 4206 in the second chart and even though the interim support at 4213 has disappeared the dominant resistance at 4218 is still evident.




Craig MacLean is a Futures Adviser Licensed under the Australian Securities Commission, Corporations Law. The writer accepts no responsibility for any losses incurred from any action or inaction derived from the advice in this report.

ASX Charting Course

Chapter 51

Point & Figure Charts