Principle of horizontal count
One
principal advantage of the intraday 1 box reversal
chart is the ability to obtain price objectives
through use of the horizontal count. If you think
back to our coverage of bar charts and price
patterns, the question of price objectives was
discussed. However, virtually all methods of
obtaining price objectives off bar charts were based
on what we call vertical measurements. This meant
measuring the height of a pattern (the volatility)
and projecting that distance upward or downward. For
example, the head and shoulders pattern measured the
distance from the head to the neckline and swung
that objective from the break of that neckline.
Point and
Figure Charts Allow Horizontal Measurement
The
principle of the horizontal count is based on the
premise that there is a direct relationship between the
width of a congestion area and the subsequent move once
a breakout occurs. If the congestion area represents a
basing pattern, some estimate can be made of the upside
potential once the base is completed. Once the uptrend
has begun, subsequent congestion areas can be used to
obtain additional counts which can be utilized to
confirm the original counts from the base.
The
intent is to measure the width of the pattern. Remember
we're talking here of intraday 1 box reversal charts.
The technique requires some modifications for other
types of charts that we'll come back to later. Once a
topping or basing area has been identified, simply count
the number of columns in that top or base. If there are
20 columns, for example, the upside or downside target
would be 20 boxes from the measuring point. The key is
to determine which line to measure from. Sometimes this
is easy and, at other times, more difficult.
Usually,
the horizontal line to count across is near the middle
of the congestion area. A more precise rule is to use
the line that has the least number of empty boxes in it.
Or put the other way, the line with the most number of
filled in x's and o's. Once you find the correct line to
count across, it's important that you include every
column in your count, even the ones that are
empty.
Count the number of columns in the congestion area and
then project that number up or down from the line that
was used for the count.
Principle of horizontal count
