We've
already stated that the intraday chart was the original
type used by point and figure chartists. The technique
was originally used to track stock market movement. The
intent was to capture and record on paper each one point
move of the stocks under consideration. It was felt that
accumulation (buying) and distribution (selling) could
be better detected in this manner. Only whole numbers
were employed. Each box was given a value of one point
and each one point move in either direction was
recorded. Fractions were largely ignored. When the
technique was later adopted to commodity markets, the
value of the box had to be adjusted to fit each
different commodity market. Let's construct an intraday
chart using some actual price data.
The following numbers
describe 9 actual days of trading in a Swiss franc
futures contract. The box size is 5 points. Therefore,
every 5 point swing in either direction is plotted.
We'll start with a 1 box reversal chart.
Column 1: Put a dot at
4875. Because the next number4880-is higher, fill in
the next box up to 4880.
Column 2: The next number
is 4860. Move 1 column to the right, go down 1 box, and
fill in all the o's down to 4860.
Column 3: The next number
is 4865. Move 1 column to the right, move up 1 box and
put an x at 4865.
Stop here. So far you have
only 1 x marked in column 3 because prices have only
moved up 1 box. On a 1 box reversal chart, there must
always be at least 2 boxes filled in each column. Notice
that the next number is 4850, calling for o's down to
that number. Do you go to the next column to record the
column of declining o's? The answer is no because that
would leave only 1 mark, the x, in column 3. Therefore,
in the column with the lone x (column 3) fill in o's
down to 4850.
Column 4: The next number
is 4860. Move to the next column, move 1 box up, and
plot in the x's up to
4860.
Column 5: The next number
is 4855. Because this is a move down, go to the next
column, move down a box, and fill the 0 at 4860. Notice
on the table that this is the last price of the day.
Let's do one more.
Column 6: The first number
on 5/2 is 4870. So far, you only have one 0 in column 5.
You must have at least 2 marks in each column.
Therefore, fill in x's (because prices are advancing) up
to 4870. But notice that the last price on the previous
day is blacked out. This is to help keep track of time.
By blacking in the last price each day, it's much easier
to keep track of the separate days' trading.
Feel
free to continue through the remainder of the chart to
sharpen your understanding of the plotting process.
Notice that this chart has several columns where both
x's and o's are present. This situation will only
develop on the 1 point reversal chart and is caused by
the necessity of having at least 2 boxes filled in each
column. Some purists might argue with combining the x's
and o's. Experience will show, however, that this method
of plotting prices makes it much easier to follow the
order of the transactions.
Takes the same data and
transforms it into a 3 box reversal chart. Notice that
the chart is condensed and a lot of data is lost. It
shows a 5 box reversal. These are the 3 reversal
criteria that have traditionally been usedthe 1, 3, and
5 box reversal. The 1 box reversal is generally used for
very short term activity and the 3 box for the study of
the intermediate trend. The 5 box reversal, because of
its severe condensation, is generally used for the study
of long term trends. The correct order to use is the one
shown here, that is, begin with the 1 point reversal
chart. The 3 and 5 box reversals can then be constructed
right off the first chart. For obvious reasons, a 1
point reversal chart could not possibly be constructed
from a 3 or 5 box reversal.
Construction of the intra-day
point and figure chart
