3
Box Reversal Point and Figure Charting
Trend Analysis and
Trend lines
The
price patterns show trend lines drawn as part of
those patterns. Trend line analysis on intraday
charts is the same as that applied to bar charts. Up
trend lines are drawn under successive lows and down
trend lines are drawn over successive peaks. This is
not true of the simplified point and figure chart,
which we're going to study next. It utilizes 45
degree lines and plots them differently.
3 BOX REVERSAL
POINT AND FIGURE CHARTING
In
1947, a book on point and figure was written by A.W.
Cohen entitled, Stock Market Timing. The following year,
when the Chartcraft Weekly Service was started, the
book's name was changed to The Chartcraft Method of
Point & Figure Trading. Several revised editions have
been published since then to include commodities and
options. In 1990, Michael Burke wrote The All New Guide
to the Three-Point Reversal Method of Point & Figure
Construction and Formations (Chartcraft, New Rochelle,
NY).
The
original 1 box reversal method of plotting markets
required intraday prices. The 3 box reversal was a
condensation of the 1 box and was meant for intermediate
trend analysis. Cohen reasoned that because so few 3 box
reversals occurred in stocks during the day that it was
not necessary to use intraday prices to construct the 3
box reversal chart. Hence the decision to use only the
high and low prices, which were readily available in
most financial newspapers. This modified technique,
which is the basis of the Chartcraft service, greatly
simplified point and figure charting and made it
accessible to the average trader.
MEASURING TECHNIQUES
Three
point reversal charts allow the use of two different
measuring
techniques-the horizontal and the vertical. For the
horizontal, count the number of columns in a bottom or
topping pattern. That number of columns must then be
multiplied by the value of the reversal or the number of
boxes needed for a reversal. For example, let's assign a
$1.00 box value to a chart with a 3 box reversal. We
count the number of boxes across a base and come up with
10. Because we're using a 3 box reversal, the value of
that reversal is $3.00 (3x$1.00). Multiply the 10
columns across the base by $3 for a total of $30. That
number is then added to the bottom of the basing pattern
or subtracted from the top of a topping pattern to
arrive at the price objective.
The
vertical count is a bit simpler. Measure the number of
boxes in the first column of the new trend. In an
uptrend, measure the first up column of x's. In a downtrend, measure the
first down column of o's. Multiply that value by 3 and
add that total to the bottom or subtract it from the top
of the column. What you're doing in effect with a 3 box
reversal chart is tripling the size of the first leg. If
a double top or bottom occurs on the chart, use the
second column of o's or x's for the vertical count.
3 Box Reversal Point and Figure
Charting
