Point & Figure (P&F) charts are one of the simplest and clearest ways to picture the securities prices and determining the best time to buy and sell shares or any other security.

The Point & Figure system represents one of the oldest approaches to stock market trading. It has been used for more than a decade and was for example used by the great trader Jesse Livermore who made millions in the stock market in the 20th century.

This method takes the technical analysts approach while monitoring supply and demand for each stock. The point and figure charts are usually used for long-term trading so that the time and cost of trading shares is minimal. The Point and Figure method can of course also be used for successful intraday and realtime daytrading, as the forces of supply and demand are present in any timeframe.

How to learn Point & Figure Charting?

Point & Figure is the most simple trading method - yet it is very profitable. It is easy to learn and put into practice. There is never any resulting "analysis paralysis" - unlike other trading methods.

On this page you find the basics of Point & Figure charting.

If you want to take part in our Training and Coaching services, please contact us. Training and Coaching Services

You can also view our Point and figure charting basics webinar here Point and figure charting basics webinar.

For more detailed and advanced studies, we present the FREE classic stock market book "The Point & Figure Method of Anticipating Stock Price Movements" by Victor DeVilliers and Owen Taylor.

You can access the first volume of the book here for FREE presented by Bull's-Eye Broker:
http://book.pointandfigure.com

The second volume of the book - the advanced volume called Advanced Theory and Practice of the Point and Figure method - is available together with volume 1 and printed in high quality. Click here for more information!

How are Point & Figure Charts Constructed?

This section is mainly just for your information, as it might or might not be interesting to understand how the point and figure charts are constructed. Our charting software Bull's-Eye Broker will obviously take care of plotting the charts for you automatically, so that you can concentrate on analysing the charts instead of plotting them.

In Point and Figure charts both axis are dependent on price rather than one being based on price and the other on date. The key unit in a P&F chart is the point, or unit of price. It is also usually refered to as a box. The box size may change in value along the y-axis to provide consistent and relative price movements. This means that a if the stock price ranges between $8 and $12, the box size may be 10 cents when the price is below $10 and 20 cents when above. An ‘X’ is placed on the chart to indicate an upward movement and an ‘O’ indicates a downward movement. The graph gets its x-axis dimension via three point reversals. A three-point reversal occurs when either:

The price is on a downward trend, then picks up three or more points,
or
The price is on an upward trend, then falls by three or more points.

When a three-point reversal occurs, the chart is continued in the next column. Thus every column must contain at least 3 ‘O’s or ‘X’s and constitutes movement in one direction only. The attraction of this method is that insignificant movements in the market are filtered out.

Now, let's look at a typical example (Broken Hill). The point size for these values is 20 cents.

Date	Day	High ($)	Low ($)
10/02/98	Tue	15.38	15.00
11/02/98	Wed	15.22	14.95
12/02/98	Thu	15.01	14.81
13/02/98	Fri	14.95	14.35
16/02/98	Mon	14.45	14.05
17/02/98	Tue	14.39	13.98
18/02/98	Wed	14.62	14.31
19/02/98	Thu	14.66	14.42
20/02/98	Fri	14.40	14.24
23/02/98	Mon	14.45	14.32
24/02/98	Tue	14.35	13.98
25/02/98	Wed	14.22	13.93

The data previous to this showed an upward trend and constituted a series of ‘X’s in the column. This column peaks at $15.38 on 10/02/98. The last ‘X’ is drawn in the $15.20 square because the share has not yet reached $15.40. This means that for a three point reversal to occur the price must drop by at least 60 cents, or three points. This happens on 13/02/98 with a low of $14.35. When this occurs the chart is moved to the next column and ‘O’s are placed in the $15.00, $14.80, $14.60 and $14.40 rows. An ‘O’ is not placed in the $14.20 row because the price has not yet reached $14.20. The price does, however, fall to $14.05 on 16/02/98 and another ‘O’ is place in the $14.20 row. The chart falls once again to $13.98 on 17/02/98. When this occurs yet another ‘O’ is added to the chart, this time in the $14.00 row. The very next day the chart rises to $14.62 and this constitutes a three-point reversal. The chart is moved to the next column and ‘X’s are placed in the $14.20, $14.40 and $14.60 rows. No more ‘X’s are added to this column because the share performs another three point reversal on the 25/02/98 and three ‘O’s are place in the appropriate points in the next column. The chart should now look like the this (first column of chart incomplete):

Dates are added to the chart by replacing an ‘X’ or an ‘O’ by the month number. When the year changes it is written at the bottom of the chart. You will notice that the year labels can be vary in position as the charts movement is dependent on price and not on date. The suspension of trading on particular shares is shown by a ‘?’ in the charts.

The Wyckoff Method

The Wyckoff Method, named after the late Wall Street legend Richard D. Wyckoff, is a special type of point & figure chart. It uses a single box reversal instead of the more common three point reversal. It also varies from the standard point & figure chart because it can contain both X’s and O’s in the same column. This will occur whenever there is only a single entry made in a column. For example if we had a single X in a column followed by 3 O’s, the O’s will be displayed in the same column as the X. In a Wyckoff chart there must always be more than one entry in a column.

Bull's-Eye Broker is capable of drawing both standard and Wyckoff type of charts, as well as any other way of Point and Figure charting you can imagine.

Let's take an example. The box size in the following chart is $1.00.

On 11/02/98 the chart rose from $55 to $57. This resulted in 3 X’s being plotted in the first column. The very next day there was a pull back of one box to $56. Because we are using a one point reversal, we move to the next column and plot the single O. The next day the price rises again to $57. This again is a reversal, however we do not move to the next column because we have only made one entry in the current column. When we are using the Wyckoff method we will not move to a new column if there is only one X or O in the present column. The upward movement continues until the chart reaches $59 on 17/02/98. Then price trend reverses and moves down to $56 - we move to the next column and enter O's down to the $56 price level. Price then goes to $57 - we move into the next column and draw an X. Now we only have one X in the present colum, and when price again reaches $56 we do not move into the next column, but instead plot the O in the same column. Same thing happens again when price moves to $57 the next time and then back to $56. Plotting the data using the Wyckoff method will produce the chart below:

Other than the requirements described above, the Wyckoff point & figure chart uses the same principals as a standard three point reversal chart.

When to Buy and Sell

This is probably the most interesting and exciting aspect of the point and figure method. Bull's-Eye Broker is handling all of the charting so the users can simply concentrate on the analysis of the point and figure charts to find entry and exit points. The point and figure method is designed to be simple yet effective and there are clear simple rule for when to buy or sell.
First of all there are a number of different patterns that represent buy or sell rules. You can find these patterns listed and explained below.

Point and Figure Patterns

These are Point and Figure patterns that our software Bull's-Eye Broker Professional will automatically detect. You do not have to do anything else than simply start the "Pattern Recognizer" and the software will automatically scan through any number of charts and quickly find the patterns you select. Imagine having your computer scan through thousands of charts while you get a cup of coffee. When you return to your computer Bull's-Eye Broker has found a number of setups with high probablity to make you big money. The only thing you have to do is to analyse the findings and select the ones you want to invest or trade in.

The Double Top and Double Bottom Formation

Double Top and Double Bottom formations are the most basic of chart patterns. A Double Top is formed when a high is followed by a decline, which is then followed by a rise that exceeds the previous. A Double Bottom is formed in a similar fashion - a low is followed by a rise, which is then followed by a decline that exceeds the previous low. As we will see later, most other formations are variations on this simplest pattern. You can see that this pattern is formed over three columns. Generally, formations that consist of more than 3 vertical columns yield better results but appear more seldom and might not be as simple to identify.


Double Top	Double Bottom

The Triple Top and Triple Bottom Formation

This pattern occurs when a series of 2 or more tops or bottoms is penetrated. Two highs are followed by a decline that is followed by a rise that exceeds the two previous tops. Generally this is formed by 5 vertical columns as shown below, however it is possible for formation to be spread over multiple columns - i.e. spread triple top and spread triple bottom. The main point is that three tops or bottoms are exceeded over 5 or more columns.


Triple Top	Triple Bottom

The Bullish and Bearish Signal Formation

The significant feature of a bullish signal formation is a higher bottom followed by a higher top. This often indicates that demand has overcome supply. Consequently a lower top followed by a lower bottom forms a bearish signal formation. This often indicates that supply has overcome demand.


Bullish Signal	Bearish Signal

The Bullish and Bearish Triangle Formations

Both triangle formations consist of higher bottoms and lower tops, generally with all prices contained between the bullish support and bearish resistance lines. The entry signals for the triangle formations are the first Double Top or Double Bottom signals.


Bullish Triangle	Bearish Triangle

Bullish and Bearish Catapult Formations

A Bullish Catapult Formation consists of a Triple Top Buy Signal, a pullback that produces no bearish signal, followed by a new double top buy. This formation has three distinct buy points:
1. the Triple Top Buy Signal,
2. the bottom of the pullback (with a stop a bearish signal – if it should occur),
3. the Double Top Buy Signal. A Bearish Catapult Formation is the reverse situation.


Bullish Catapult	Bearish Catapult

The Long Tail Down and Long Tail Up formations

A Long Tail Down must have at least twenty Os down. A buy signal is given whenever there is a 3 box upside reversal. A stop-loss can be placed where a double bottom sell signal may occur. Similarly, a Long Tail Up must have at least twenty Xs up. A sell signal is given whenever there is a 3 box downside reversal. A stop-loss can be placed where a double top buy signal would occur.

The High and Low Pole Formations

A High Pole begins with at least 3 Xs above a previous top. The formation is completed when there is a reversing column of Os that is at least 50% as long as the column of Xs. This warns of a topping process. The Low Pole is the reverse situation.


High Pole	Low Pole

Trendlines

An important aspect of Point and Figure trading is to assess whether or not the buy and sell signals are in agreement with the basic trend of the stock. This can easily be assessed via trend lines. Trend lines can be drawn in Bull’s-Eye Broker by clicking on the starting point and dragging the mouse to the desired end point. In the Point and Figure method there is no second guessing where to place the trendlines or how to draw them. Bullish trendlines are normally drawn at a 45 degree angle and bearish trendlines are drawn at a 135 degree angle. In other words the trendlines are usually drawn diagonally - not subjectively from one arbitrary point to another.

Trendlines can also be drawn automatically by Bull's-Eye Broker.

The Bullish Support Line

A bullish support line is drawn from the lowest point on completion of a significant downtrend and is extended up at a 45-degree angle as far right as possible. This line is predictive because it can be drawn as soon as the market has completed its downtrend. This line does not connect points as trend lines often do. An example of a Bullish Support Line is shown below:

Having drawn this, the theory is quite simple. Any sell signals given above this line should be disregarded. This means the share should not be sold until the first sell signal after the bullish support line has been penetrated.

The Bearish Resistance Line

The bearish resistance line is a very similar concept to the bullish support line. It is drawn from the highest point on completion of a significant uptrend and is extended downwards at an angle of 45 degrees as far right as possible. An example of a bearish resistance line is shown below:

Any buy signals given below this line should be disregarded. This means the share should not be purchased until the first buy signal given after penetration of the bearish resistance line.

Market indicators

Before buying and selling shares, it is necessary to assess two market indicators to put the odds in favour of a successful trade :

1. The industry group to which the share is associated. Stocks are usually grouped together based on common lines of business. Most of the stocks in one group tend to rise and fall together as a whole. Generally, it is not a good idea to buy a stock while the rest of the stocks in the group are falling. Similarly, it is not wise to sell a stock short while the rest of the stocks in the group are rising.

The industry groups can also be used to take advantage of relative strenght. I.e. buy the strongest stock in a strong group, or sell the weakest stock in a weak group. This will generally propel your stock with additional force.

2. The market as a whole. This should be assessed via inspection of the major market indices such as SP500 and Dow Jones Industrial Average. Shares should only be purchased when the market as a whole is bullish. Similarly, shares must be selected from industry groups that are bullish and acting better than the rest of the market.

Point and Figure Price Objectives

The price objective is an important feature of the Point and Figure charts. It is the price that the stock is likely to reach after a Point and Figure pattern has given a buy or sell signal. It is however important to remember that the objective is not written in stone, it is merely a guide and a reason to "stop, look, listen". Often the price do not reach the exact objective, and just as often the price shoots through the objective. Therefore the investor or trader is wise to analyse the stock carefully close to these objectives and either raise stops, take profits or simply stay alert.

There are two ways to project price: vertical counts and horizontal counts.

Vertical Count

Buy – Assuming a 3-box reversal, count the number of Xs in the first move up that produces a buy signal. Multiply this number by 3 and add the product to the lowest X in the column on the right. Sell – Reverse for a sell signal.

Example of a Bullish Vertical Count

5 X's up

3 * 5 = 15 and 35 + 15 = 50
50 is the upside objective

Example of a Bearish Vertical Count

4 O's down

4 * 3 = 12 and 52 – 12 = 40
40 is the downside objective

Horizontal Count

Horizontal counts were used by the Wall Street legend Richard D. Wyckoff to determine the price objectives of his trades. The objective is calculated by counting the number of boxes in a horizontal formation when buy or sell signals are found.

Buy – Assuming a 3-box reversal, count the number of boxes across the base of the formation that has given a buy signal. Multiply that number by 3 and add it to the price of the lowest point in the formation. Sell – Reverse for a sell signal.

Example of a Bullish Horizontal Count

3 boxes across
3 * 3 = 9 and 54 – 9 = 45
45 is the downside objective

Example of a Bearish Horizontal Count

4 boxes across
3 * 4 = 12 and 35 + 12 = 47
47 is the upside objective

general guidelines

To really stack the odds in your favour you should consider these general guidelines when buying. Like most things in the Point and figure method, the reverse apply when selling short. Bull's-Eye Broker will easily help you with all of these points.

Buy stocks when the percentage of bullish stocks has a column of Xs, especially on an upturn from below 10%.

Buy stocks whose sector relative strength chart has a column of Xs.

Buy stocks whose relative strength chart has a column of Xs.

Buy stocks that are above their Bullish Support and Bearish Resistance Lines.

Buy stocks that have some kind of bullish signal.

Consider buying some stocks that are in a pullback, but whose relative strength has a column of Xs.

Look to take profits whenever the percentage of bullish stocks is above 70% (and especially above 80%) and have a column of Os.

Rising bottoms are stronger than flat bottoms.

Based on a research study, the strength of bullish signals in order are: Triple Top, Spread Triple Top, Bullish Signal, Double Top

Why Point & Figure Charts?