Point and Figure Trading Tactics

Let's look at the various ways that these point and figure charts can be used to determine specific entry and exit points.

A simple buy signal can be used for the covering of old shorts and/or the initiation of new longs.
A simple sell signal can be used for the liquidation of old longs and/or the initiation of new shorts.
The simple signal can be used only for liquidation purposes with a complex formation needed for a new commitment.
The trend line can be used as a filter. Long positions are taken above the trend line and short positions below the trend line.
For stop protection, always risk below the last column of o's in an uptrend and over the last column of x's in a downtrend.
The actual entry point can be varied as follows:

a. Buy the actual breakout in an uptrend.

b. Buy a 3 box reversal after the breakout occurs to obtain a lower entry point.

c. Buy a 3 box reversal in the direction of the original breakout after a correction occurs. Not only does this require the added confirmation of a positive reversal in the right direction, but a closer stop point can now be used under the latest column of o's.

d. Buy a second breakout in the same direction as the original breakout signal.

As you can readily see from the list, there are many different ways that the point and figure chart can be used. Once the basic technique is understood, there is almost unlimited flexibility as to how to best enter and exit a market using this approach

Adjusting Stops

The actual buy or sell signal occurs on the first signal. However, as the move continues, several other signals appear on the chart. These repeat buy or sell signals can be used for additional positions. Whether or not this is done, the protective stop point can be raised to just below the latest o column in an uptrend and lowered to just over the latest x column in a downtrend. This use of a trailing stop allows the trader to stay with the position and protect accumulated profits at the same time.