The
first charting technique used by stock market traders
before the turn of the century was point and figure
charting. The actual name "point and figure" has been
attributed to Victor deVilliers in his 1933 classic, The
Point and Figure Method of Anticipating Stock Price
Movements. The technique has had various names over the
years. In the 1880s and 1890s, it was known as the "book
method." This was the name Charles Dow gave it in a July
20, 1901 editorial of The Wall Street Journal.
Dow
indicated that the book method had been used for about
15 years, giving it a starting date of 1886. The name
"figure charts" was used from the 1920s until 1933 when
"point and figure" became the accepted name for this
technique of tracking market movement. R.D. Wyckoff also
published several works dealing with the point and
figure method in the early 1930s.
The
Wall Street Journal
started publishing
daily high, low, and closing stock prices in 1896,
which is the first reference to the more commonly
known bar chart. Therefore, it appears that the
point and figure method predates bar charting by at
least 10 years.
We're
going to approach point and figure charting in two
steps. We'll look at the original method that relies
on intraday price moves. Then we'll show you a
simpler version of point and figure charting that
can be constructed by using only the high and low
prices for any market.
COMPUTERIZED P&F CHARTING
Computers have taken the
drudgery out of point and figure charting. The days of
laboriously constructing columns of x's and o's are
gone. Most charting software packages do the charting
for you. In addition, you can vary the box and reversal
sizes with a keystroke to adjust the chart for shorter
or longer term analysis. You can construct p&f charts
from real-time (intraday) and end of day data, and you
can apply them to any market you want. But you can do a
lot more with a computer.
Kenneth Tower (CMT),
technical analyst for UST Securities Corporation, (5
Vaughn Drive, CN5209, Princeton, N.J. 08543) uses a
logarithmic method of point and figure charting. A
screening process that measures the volatility of a
stock over the last 3 years determines the right
percentage box size for each stock.
ADVANTAGES OF POINT AND
FIGURE CHARTS
Let's briefly recap some
of the advantages of point and figure charting.
-
By varying the box and
reversal sizes, these charts can be adapted to almost
any need. There are also many different ways these
charts can be used for entry and exit points.
-
Trading signals are
more precise on point and figure charts than on bar charts.
-
By following these
specific point and figure signals, better trading
discipline can be achieved
Free
Online Point and Figure Charting Lessons
