Points and Figures Chart

The Points and Figures chart representation is a very old method that differs from traditional charts in that it does not refer to time in the same way.

The specificities of technical analysis using a "Points and Figures" chart compared to other types of representation are as follows:

1. The chart does not take into account the temporal dimension of price evolution
2. Prices are studied in ranges of variation (in monetary units or percentage) which mitigates minor fluctuations

Calculation Method

The vertical axis represents a price variation expressed in monetary units or as a percentage.
This axis has the particularity of evolving by "boxes". This "box" measures the scale of price evolution.

The horizontal axis corresponds to trend reversals as trading days progress.
For an effective reversal and thus an advancement of one unit on the horizontal axis, a "reversal threshold" must be reached.
This "reversal threshold" corresponds to a defined number of "boxes" to take into account the change in trend. The "reversal threshold" can be 2, 3, or 4 "boxes" (or even more).

The columns of the chart are filled with either X or O signs.

• The cross X, symbol of uptrends, appears in bullish columns,
• The circle O, symbol of downtrends, appears in bearish columns.

Example

Interpretation

"Points and Figures" charts allow for decomposing price variations into large phases of uptrends and downtrends by eliminating intermediate peaks. The setting of the "box" and the "reversal threshold" allows for defining the precision of detection.

The tops of bullish columns that align on a straight line constitute a resistance line. Conversely, the bottoms of bearish columns that align on a straight line constitute a support line.

According to analysts, buy signals are given in the following configurations:

• Appearance of an X above the top of the previous bullish column,
• A new high is reached after breaking a resistance line,
• Upon crossing the resistance line of a formed triangle,
• Upon upward breakout of the resistance line of a formed bearish channel.

and sell signals are given in the following configurations:

• Appearance of an O below the bottom of the previous bearish column,
• A new low is reached after breaking a support line,
• Upon crossing the support line of a formed triangle,
• Upon downward breakout of the support line of a formed bullish channel.