3 Box Reversal Point and Figure Charting

The construction of the chart is relatively simple. First, the chart must be scaled in the same way as the intraday chart. A value must be assigned to each box. These tasks are performed for subscribers to the Chartcraft service because the charts are already constructed and the box values assigned. The chart shows a series of alternating columns with x's representing rising prices and the o columns showing falling prices.

The actual plotting of the x's and o's requires only the high and low prices for the day. If the last column is an x column (showing rising prices), then look at the high price for the day. If the daily high permits the filling in of 1 or more x's, then fill in those boxes and stop. That's all you do for that day. Remember that the entire value of the box must be filled. Fractions or partial filling of the box don't count. Repeat the same process the next day, looking only at the high price. As long as prices continue to rise, permitting the plotting of at least one x, continue to fill in the boxes with x's, ignoring the low price.

The day finally comes when the daily high price is not high enough to fill the next x box. At that point, look at the low price to determine if a 3 box reversal has occurred in the other direction. If so, move one column to the right, move down one box, and fill the next 3 boxes with o's to signify a new down column. Because you are now in a down column, the next day consult the low price to see if that column of o's can be continued. If one or more o's can be filled in, then do so. Only when the daily low does not permit the filling in of any more o's do you look at the daily high to see if a 3 box reversal has occurred to the upside. If so, move 1 column to the right and begin a new x column

What to Do After a Prolonged Move

Intermittent corrections against the trend allow the trader to adjust stops once the trend has resumed. How is this accom­plished, however, if no 3 box reversals occur during the trend? The trader is then faced with a long column of x's in an uptrend or o's in a downtrend. This type of market situation creates what is called a pole, that is, a long column of x's and o's without a correction. The trader wants to stay with the trend but also wants some technique to protect profits. There is at least one way to accomplish this. After an uninterrupted move of 10 or more boxes, place a protective stop at the point where a 3 box reversal would occur. If the position does get stopped out, reentry can be done on another 3 box reversal in the direction of the original trend. In that case, an added advantage is the placement of the new stop under the most recent column of o's in an uptrend or over the latest column of x's in a downtrend.