Point and Figure Charting

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In this guide to understanding Point and Figure Charting, we’ll show you what this chart looks like, explain its components, and teach you how to interpret it.

What Is Point and Figure Charting?

Point and Figure Charting reduces the importance of time on a chart and instead focuses on price movements.

Point and Figure charts are made up of Xs and Os. The Xs are new highs and the Os are new lows.

The strength of Point and Figure charting is that it eliminates the element of time and focuses on price.

Inputs For a Point and Figure Chart

There are two inputs to a Point and Figure chart:

  1. Box size
  2. Reversal amount.

Let’s look at these inputs in more detail.

Box Size

The box size is the size of movement required to add an X or an O.

For example, a stock at a price of $20 may have a box size of $1. This means that an increase from $20.01 to a high of $21.34 means another X is added.

If the high price only increased to $20.99, then another X is not added because the stock didn’t close another box size ($1) more.

Reversal Amount

The reversal amount is the size of reversal before another column is added to a Point and Figure chart.

To illustrate, if the reversal amount is $3, then the $20 stock would have to fall down to $17 before a new column (in this example of Os) would be started.

How to Use a Point and Figure Chart

One of the main uses for Point and Figure charts, and the one emphasized in this section, is that Point and Figure charts make it easier for traders to see classic chart patterns.

Seeing Support and Resistance Lines

In Chart 1 below, the Point and Figure chart emphasizes support and resistance lines as well as areas of price breakouts:

Chart 1: point and figure charting
Chart 1

Seeing the Double Bottom Pattern

The Point and Figure chart (Chart 2 below) makes it easy for traders to see the double bottom pattern of the E-mini S&P 500 Futures contract:

Chart 2: point and figure chart outlining a double bottom formation
Chart 2

Chart 2 above illustrates the two bottoms of the double bottom pattern, as well as the pierced confirmation line, resulting in a potential buying opportunity.

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FAQ

Below we answer some common questions about Linear Regression Line indicators.

Further Reading

Learn more about technical analysis indicators, concepts, and strategies including:

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