College Level

Introduction
to Technical
Analysis Point and Figure Charting

Point and Figure Charting

History
l

Characteristics
l

Construction
l

Deciding on Point and Figure Parameters

l

Patterns and Signals

l

Trend lines
l

Price Targets
l

Risk Reward Ratios

l

This lecture series is produced by

the Market Technicians Association
Educational Foundation, Inc.
based on the book
The Definitive Guide to Point and Figure
by Jeremy du Plessis, CMT, FSTA
Copyright © 2008. All rights are reserved.

Market Master Textbook

Technicians Technical Analysis: The Complete Resource for Financial Market Technicians
A s s o c i at i o n Charles D. Kirkpatrick II, CMT and Julie R. Dahlquist, Ph.D.
E d u c at i o n a l Part IV - Pages 341-364
F o u n d at i o n
Additional Reading
Identifying and funding
The Definitive Guide to Point and Figure
educational programs in the field
du Plessis, Jeremy CMT, FSTA, Harriman House, Peterfield, UK, 2005
of Technical Analysis since 1993

Techncial Analysis of the Financial Markets

MTA Educational Foundation Murphy, John, CMT, pages 265-296
Post Office Box 425127
Cambridge, MA 02142-5127
617/253-8959 • Fax: 617/452-2199
[email protected] • www.mtaef.org
Figure 1 History
The Evolution of Plotting Styles
• Not invented by any one person, developed over a period of time by traders
Figure Chart
- Started in 19th century as a simple price record which became a charting
system
• Started by writing down the prices in columns
- Rising column of numbers as the price rose
- Falling column of numbers as the price fell
• After a while noticed patterns occurring in their price record
• Price record becomes a Figure Chart
• Then added a vertical scale and used Xs instead of numbers.
• New chart becomes known as a Point Chart
• Until 1930s, traders used both Point charts and Figure charts
Figure 1, Chart A
• Referred to as their ‘Point’ and ‘Figure’ charts, the name we use today!
Point Chart • Figure charts fell out of use in the late 1930s
• Point chart style continues to be used in certain circumstances
• In 1950s a new plotting method was devised
- Xs for up-columns
- Os for down-columns
Figure 1 shows the progress of the plotting methods

Characteristics
• Point and Figure charts study price movement only
• No regard is giving to the passage of time, if the price does not move, the chart
Figure 1, Chart B
does not change
Point & Figure Chart • Normally constructed with Xs and Os, some analysts still use Xs only
- Up movements represented by a column of Xs
- Down movements represented by a column of Os
• Price
- Scaled on the vertical axis
• Time
- No time along the horizontal axis
- Time plays no part in the construction or analysis
- Time can be marked on a point and figure chart by:
Figure 1, Chart C • Filling the X or O with the month number
• and/or noting the years at the base of the chart
• Box Size
- Each X and O represents a price interval called the box size.
• The smaller the box size, the more sensitive the chart
• Price changes below the box size are ignored

College Level Introduction to Technical Analysis Point and Figure Charting • Page 
Figure 2 • Reversal Size
How to Plot a 1-Box Reversal Chart
- Column of Xs changes to Os (or vice versa) when the price reverses by a
predetermined number of boxes, called the reversal size
- Reversal size traditionally 1 (the original method) or 3 (the most common
use), although computers have allowed any reversal to be used making 2
quite common
• Naming a Point and Figure Chart
- Named according to box size and reversal
Figure 3 - For example:
(A) Wrong and (B) Right Way to Plot 1-
Box Reversal Charts • If box size is 10 and reversal is 3, the chart is a 10 x 3 point and figure
chart

Construction
• Complex and varied
• Important to understand construction for the understanding of the charts
Using Tick Data – The Original Method
• Every price change is used to construct the chart using a box size of 1 point.
• Plotting direction changed on the reversal of 1 point or 1 box
Figure 3, Chart A
• As point and figure charts were applied to other markets, so the box size had
to be altered to cater for the different price levels, but column changes were
still made on a 1 box reversal and the charts became known as 1-Box reversal
charts

• 1-Box Reversal Charts

• If the price reverses by the value of one box, you start plotting in the other
direction
- In most cases this means a change of columns but not always
• Think back to the original Figure charts
• You only changed columns if the space in the current column was
already occupied
Figure 3, Chart B
• So if the price reverses by one box only (see Figure 2, chart A) and
then reverses back (see Figure 2, chart B you must plot the X and the
O in the same column)
• This is because the square occupied by the X is unfilled making room
to plot the X
- Called the ‘one-step-back’ and can only occur when there is one filled box
in the column
- If, however, there is more than one filled box (see Figure 2, Chart C),
then you must move to the next column to plot the reversal (see Figure 2,
Chart D)
- ‘One-step-back’ is indicates a re-assertion of control after a temporary
setback and is important for the analysis of the 1–box chart in respect of
trend lines, targets etc.
Figure 3, Chart A shows the incorrect construction where every reversal changes
column. Chart B shows the correct construction.
College Level Introduction to Technical Analysis Point and Figure Charting • Page 
Figure 4 • 3-Box Reversal Charts
1-, 3-, 5- and 2-Box Reversal Charts
- Chart changes direction when the price reverses by the value of three boxes
- Minimum number of boxes in any column is 3
- Impossible to have an X and O in the same column
- Originally constructed from the 1-box charts
- Condense the data to give a longer term perspective
- Asymmetric Filter
• 1-box charts apply the same filter in both directions
Figure 4, Chart A • 3-box charts apply a one box filter in the direction of the current column
and a three box filter against the direction
- Value of the last box determines whether there is a reversal
• The price that resulted in the box being plotted is not recorded
• For example when plotting an X column in a 1 x 3 chart:
- A price of 23.9 will result in a X being plotted in the 23 box
- Once plotted, the price of 23.9 is forgotten
- The price must fall to 20 to plot a reversal, which is actually a fall of
Figure 4, Chart B
3.9, not 3

• Other Reversals
- Early Point and Figure chartists also used 5-box reversal charts
- These are mostly ignored now, because of the large contrary moves required
to change direction
- 2-box has become favoured by many short-term traders being a half-way
point between 1-box and 3-box charts
Figure 4, Chart C Figure 4 shows 1-, 2-, 3- and 5-box reversal charts plotted from the same data.
Note how reducing the reversal makes the chart more sensitive and provides
more detail of the price action.
Using End-of-Day Data
• Access to and management of tick data becomes difficult for long term charts
• So End-of-Day data is used instead, by taking one price at the end of the day
• Two Construction Methods
- Using Close price at the end of the day
Figure 4, Chart D • Simplest method just takes the last price of the day to construct the chart
- Using the day’s High or Low
• Uses either the high or the low according to a set of rules
• Some students will query why the high and the low can’t be used. The
reason is that you do not know the order in which they occurred
• Rules for High/Low construction:
- Take note of the direction of the current column
- If column is up i.e. column of Xs, look at the high
• If high produces a new X, plot it and go to next day

College Level Introduction to Technical Analysis Point and Figure Charting • Page 
Figure 5 • If high does not produce a new X, look at the low to see if there is a
10 x 3 Chart of S&P 500 Plotted Using reversal
Close Price
• If there is a reversal, change columns a plot the reversal
• If there is no new high and no low reversal, ignore the day
- If column is down i.e. column of Os, look at the low
• If low produces a new O, plot it and go to next day
• If low does not produce a new O, look at the high to see if there is a
reversal
• If there is a reversal, change columns a plot the reversal
• If there is no new low and no high reversal, ignore that day
Figure 6 The resultant chart has wider congestion areas because there are more column
10 x 3 Chart of S&P 500 Plotted Using changes. Compare the Close constructed chart in Figure 5 with the High/Low
High or Low Price
chart in Figure 6.
- Close or High/Low – which is better?
• There is no clear cut case for preferring the close or the high/low
construction method
• In both methods either Xs or Os, but not both, are plotted each day
• Consequently, the charts cannot show the path the price has taken during
the day
• Experience gained from using the charts will help you to see which is best
for the security you are trading
Figure 7
0.5 x 3 Arithmetic Scale Chart of Intel Using End-of-Interval Data
Corp. • Viable alternative to both tick and end-of-day Point and Figure charts
• Constructed using intraday time interval data
- Use close or high/low at the end of every time interval
• 1 minute
• 60 minute
• Etc.
• Advantage
- Long-term interval histories are easier to store and obtain
Figure 8
- The chart does trace the path taken by the price during the day
1.5% x 3 Log Scale Chart of Intel Corp.
Log Scale Point and Figure Charts
• Arithmetic Point and Figure charts have a fixed box size throughout the chart
- Same vertical distance throughout the chart equates to the same difference
in price
- As the price rises however, so the box size becomes too small relative to the
price
- Early Point and Figure chartists recognised this and increased the box size
at certain key levels with unsatisfactory results

College Level Introduction to Technical Analysis Point and Figure Charting • Page 
Figure 9 • Log Point and Figure charts have a fixed percentage box size
15 x 3 Daily Chart of S&P 500
- For example in a 1% Point and Figure chart:
• The value of the box is 1% of the price
• Each box is 1% bigger than the box below it
- Allows a smooth increase or decrease in the value of the box as the price
rises or falls
- Keeps the sensitivity of the chart constant no matter what the price
• Log or Arithmetic – which to use
- Log is better for:
Figure 10
• Long-term charts
10 x 3 Daily Chart of S&P 500 • Charts where there has been a large rise or fall
- Arithmetic is better for:
• Short-term charts
• Charts in a price range
• Fixed income and foreign exchange
Figure 7 shows an arithmetic Point and Figure chart of Intel Corp. with a box
size of 0.5 throughout the chart
Figure 8 shows a log scale Point and Figure chart of Intel Corp. with a box size
of 1.5% throughout the chart. Notice that the box size in points therefore varies
Figure 11 as the price changes.
5 x 3 Daily Chart of S&P 500
Deciding on Point and Figure Parameters
• Point and Figure charts change as drawing parameters change
• The same set of data can produce 30 different point and figure charts
• Reversal Size
- 1-box and 3-box charts are two different types of chart
- Not mutually exclusive - often used together
- 1-box ‘looks inside’ a 3-box chart
- 3-box charts are more objective
Figure 12 • Box Size
1 x 3 Daily Chart of S&P 500
- Changes chart sensitivity and therefore time horizon
- The smaller the box size, the shorter the time horizon
• Time Frame Data
- Changing time frame of the data changes sensitivity
- More data points to plot chart with
Where Do You Start
• Decide which reversal you will use
- 3-box charts are easier to use because they are more objective
- Understand 3-box first, then add 1-box later
• Decide on your time horizon?

College Level Introduction to Technical Analysis Point and Figure Charting • Page 
Figure 13 - Medium- to long-term investors use daily time frame charts
1 x 3 Hourly Chart of S&P 500
• Start with a box size of around 1% of the latest price, or 1% of the price
range if you are charting fixed income
• Start with arithmetic scale charts and migrate to log scale if necessary
- Short-term traders use intraday time frame charts
• Start with a box size around 0.1% of the latest price
- Be prepared to redraw the chart with smaller box sizes to expose more detail
until you become ‘comfortable’ with the chart
- Most Point and Figure chartists will have two maybe three charts open with
Figure 14 different box sizes so all time horizons can be seen
1 x 3 15-Minute Chart of S&P 500
Figure 9, Figure 10, Figure 11, Figure 12 show how reducing the box sizes
exposes more detail. Notice the circled sections.
• Notice how the 1 x 3 using daily data is difficult to read – long columns of Xs
and Os
• This is because there is only one price per day being used to construct the chart
• As you increase the number of data points per day using intraday interval data,
so the chart becomes clearer again
Figure 13 shows a 1 x 3 using hourly data; Figure 14 shows a 1 x 3 using 15
minute data; Figure 15 shows a 1 x 3 using 1 minute data.
Figure 15
1 x 3 1-Minute Chart of S&P 500
Patterns and Signals
• Point and Figure charts show demand and supply
- Demand pushes up a column of Xs
- Supply pushes down a column of Os
• Equilibrium occurs when a column of Xs rises to the same level as the
previous column of Xs
- A basic buy signal occurs if demand is sufficient to overcome supply at the
equilibrium level and the price rises enough to plot another X
Figure 16 - Conversely, if two columns of Os are in equilibrium and the supply is
3-box Double-Top Buy and Double- sufficient to decrease the price and a new O is plotted, this becomes a basic
Bottom Sell Signals
Point and Figure sell signal
Figure 16 shows the 3-box versions called double-top buy and double-bottom
sell signals.
• They can be continuation or reversal patterns
• In 1-box charts, the patterns are called semi-catapults if they are continuation
and Fulcrums if they are reversal
Figure 17 • They can have a number of variations
1-box Semi-Catapult Buy and Sell Figure 17 shows a variety of 1-box reversal semi-catapult buy signals and sell
Signals
signals.
- These all equate to the two 3-box patterns in Figure 16
Figure 18 shows a number of 1-box reversal fulcrums.
• All Point and Figure patterns are built around these basic patterns
• The wider the pattern, the more important the signal
- So a triple-top buy is more important. See Figure 19
College Level Introduction to Technical Analysis Point and Figure Charting • Page 
Figure 18 Common Patterns
1-box Reversal Fulcrum Patterns
• 1-Box charts only have two pattern types, although many variations
- Semi-catapult – continuation
- Fulcrum – reversal
• 3-Box charts have had a number of common patterns identified and named
Figure 19 • Here are a few of them
Triple-Top Buy and Triple-Bottom Sell
• Catapult See Figure 20 (different from 1-box semi-catapult)
- Requires:
• Triple-top (or bottom) break out (1st signal)
• Pull back into pattern
Figure 20 - Second double-top (or bottom) breakout (2nd signal)
3-box Bullish and Bearish Catapult
Patterns • Symmetrical Triangles See Figure 21
- Similar to those in bar charts
- Important note:
• The buy or sell signal is a Point and Figure double-top or double-bottom
Figure 21
signal and not the break of the trend
Symmetrical Triangles • Bearish (and Bullish) Pattern Reversed See Figure 22
- Requires:
• Series of descending highs and lows (or ascending highs and lows)
• Followed by a reversal in other direction giving a double-top buy
(double-bottom sell) See Figure 22

• Poles See Figure 23

Figure 22 - Reversal Patterns – never continuation
Bearish and Bullish Pattern Reversed - Requires:
• Price to break above (or below) previous price action
• Price then reverses the breakout in the next column
• Breakout column must exceed previous highs or lows by 5 or more boxes
• Next columns retracement must be more than 50%
- Can occur in up trends or down trends
- High poles indicate near-term weakness
Figure 23 - Low poles indicate near-term strength
High Pole and Low Pole
• Pattern Summary
- There are many more patterns and variations of basic patterns
- Don’t look for perfect patterns
- Don’t try to learn patterns
- Understand the basic patterns and what they mean
• Represents the interaction of bulls and bears
• Shows their fear and greed
• The wider the pattern, the more times a level is tested, the stronger the
pattern

College Level Introduction to Technical Analysis Point and Figure Charting • Page 
Figure 24 • Look for re-assertion of control
5 x 3 of S&P 500 With 45 Degree Trend
Lines - Look for combinations and variations of standard patterns
- Consider the psychological make-up of the pattern

Trend Lines
• Essential part of Point and Figure analysis
• Can be drawn in two ways:
- Subjectively by connecting higher lows for an uptrend or lower highs for a
downtrend
- Objectively by drawing trend lines at 45° from tops and bottoms (3-box
Figure 25 charts only)
25 x 3 of Nasdaq Composite Showing
Internal Trends Objective 45° Trend Lines
• Uptrend called bullish support
• Downtrend called bearish resistance
• Always alternate between bullish and bearish
• Can be drawn immediately as a bottom or top is made
• If future price action touches the 45° trend line, its strength and importance is
increased
Figure 24 is a 5 x 3 point and figure of the S&P 500 Index with 45° trend lines.
- Trend line (A) is drawn at 45° from 1987 low
• Notice the price comes back to touch it at point (1) in December 2000
• The strength of a 45° is enhanced if the price returns to touch it
- Trend line (B) is drawn at 45° from the September 2000 top
• The price touches and therefore reinforces the line at point (2) in May
2001 and point 3 in March 2002
- Trend line (C) is drawn at 45° from the March 2003 low
• The price returns to touch the line at point (4) in July 2006 and point (5)
in November 2007
- Trend line (D) is drawn at 45° from the September 2007 high
• The price returns to touch the line at point (6) in December 2007
Internal 45° Trend Lines
• When price moves too far away from the main 45° trend line, internal 45°
lines may be drawn from reaction points
• These provide support nearer to the price action
Figure 25 shows the NASDAQ in January 2008
- The price has moved away from the main bullish 45° trend (A)
- Internal 45° trend line can be drawn from reaction point (B)
• Provides support at point (1)
- Another internal 45° line can be drawn from reaction point (C)
- Provides support at points (2) and (3)

College Level Introduction to Technical Analysis Point and Figure Charting • Page 
Figure 26 Subjective Trend Lines
15 x 1 of S&P 500 Showing Subjective
Trend Lines - Used mainly on 1-box reversal charts
Figure 26 shows a 15 x 1 of S&P 500
- Note the use Xs only when 1-box charts are drawn
• There is nothing preventing the use of subjective lines on 3-box charts if an
obvious trend can be seen
Figure 27 shows a 5 x 3 of Spot gold
- The lighter lines are at 45°
- The darker lines are the more obvious subjective lines

Point and Figure Trend Line Breaks

Figure 27
5 x 3 of Spot Gold Showing Subjective • A double-top or double-bottom signal is required for a trend line break to be
Trend Lines valid
• The signal should ideally occur at the time the trend line is broken
See Figure 24
• Signals may occur just before or just after the break
• If no signal occurs with the break, usually a penetration of three boxes is
sufficient to confirm the break as valid
• Break of trend line puts you on alert, the Point and Figure signal is the signal
to act

Price Targets
• Major benefit of using Point and Figure charts
• Two methods:
- Vertical – 3-box charts only
- Horizontal – 3-box and 1-box charts
Vertical Targets
• Upside Target:
- Count the number of Xs in the move
- Multiply the number of Xs by the box size and the reversal
- Add this total to the low of the previous column of Os
• Downside Count:
- Count the number of Os in the move
- Multiply the number of Os by the box size and the reversal
- Subtract this total from the high of the previous column of Xs
• Counts may only be taken in following places:
See Figure 28, 5 x 3 Point and Figure chart
• First move off a bottom or top
- Target [1] = 440 + (4 x 5 x 3) = 500
• Second move off a bottom or top if first is only 3 or 4 boxes
- Target [2] = 445 + (10 x 5 x 3) = 595

College Level Introduction to Technical Analysis Point and Figure Charting • Page 10
Figure 28 • Any significant breakout column that changes to look of the chart
5 x 3 Chart Showing Vertical Upside
Targets - Target [3] = 475 + (12 x 5 x 3) = 655
• Any mini-bottom or top
• Target [4] = 500 + (8 x 5 x 3) = 620
• The converse applies to down counts. See Figure 29
- Target [1] = 530 – (6 x 5 x 3) = 440
- Target [2] = 515 – (9 x 5 x 3) = 380
- Target [3] = 485 – (6 x 5 x 3) = 395
Horizontal Targets (3-box)
• Can only be used when there is a wide top or bottom pattern
• Conditions:
Figure 29 - Must be a move into the top or bottom pattern
5 x 3 Chart Showing Vertical Downside
Targets
- Followed by a sideways consolidation period
- Followed by a move out in the opposite direction
• Upside Count:
- Count the number of columns in the pattern
- Multiply the number of columns by the box size and reversal
- Add this total to the lowest value in the pattern
• Downside Count:
- Count the number of columns in the pattern
- Multiply the number of columns by the box size and reversal
- Subtract this total from the highest value in the pattern
Figure 30
5 x 3 Chart Showing 3-Box Horizontal See Figure 30
Upside Targets
• Target [1] = 455 + (6 x 5 x 3) = 545
• Target [2] = 455 + (10 x 5 x 3) = 605
• Target [3] = 455 + (12 x 5 x 3) = 635
• Target [4] = 455 + (6 x 5 x 3) = 590

College Level Introduction to Technical Analysis Point and Figure Charting • Page 11
Figure 31 Horizontal Targets (1-box)
10 x 1 Chart Showing 1-Box Horizontal
Targets • Different method from 3-box charts
• Can also be used for counting across continuation patterns (not possible with
3-box)
• Measure the width of the pattern using the following rules:
- If the pattern has ‘walls’
• Count the number of columns from the bottom of the right hand wall to
the left hand wall
- If the pattern does not have clear-cut walls
• Count the number of columns in the row which has the most filled boxes
• Or count the number of columns across at the break-out point
• Project the count up or down by an equal number of boxes See Figure 31
- Target [1] - between walls and most filled in row 11 columns across pattern
• 1130 + (11 x 10) = 1240
- Target [2] - at catapult point
• 1160 + (12 x 10) = 1280
- Target [3] - at catapult point
• 1180 + (14 x 10) = 1320
• Target [4] – Continuation pattern most filled in row (target could be up or
down)
• 1120 + (6 x 10) = 1280 or 1120 – (6 x 10) = 1160
Target Summary
• Targets are potential
• Targets have no time scale
• Nearest targets must be considered first
• Look out for clustering of targets – targets from different columns
• Significance of Trend:
- Counts with the trend tend to be achieved
- Counts against the trend tend not to be achieved
- Counts at ends of trends are usually not fulfilled
• Always one count that is not achieved
• Count is negated when the price reverses beyond the start point
• Possible to have opposing counts

College Level Introduction to Technical Analysis Point and Figure Charting • Page 12
Figure 32 Risk Reward Ratios
Risk Reward Ratio Calculation
• Because Point and Figure gives a target, Risk Reward ratios can be calculated
at the time a signal is given
- Risk Reward Ratio = Reward / Risk
• Reward = Potential gain based on point and figure target
• Risk = Potential loss based on point and figure sell signal See Figure 32
- The buy signal at point A gives a target of 41
• Reward = target – breakout price = 41 – 28 = 13
• Risk = breakout price – Point and Figure stop at point B or point C
- Risk 1 based on B = 28 – 22 = 6
- Risk 2 based on C = 28 – 19 = 9
• Risk/Reward 1 = 13/6 = 2.2
• Risk/Reward 2 = 13/9 = 1.4
• Risk/Reward does not have to calculated at the signal point
• The calculation can be adapted to accommodate any entry point, provided
you have the target and the Point and Figure stop, reward and risk can be
calculated

Advantages and Disadvantages of Point and Figure

Advantages
• Unambiguous signals
• Don’t have to learn dozens of patterns
• Ability to change time horizon with box size and reversal
• 3-box reversal charts have a 2-way filter
• Objective trend definition with 45° trend lines
• Unambiguous way to project targets
• Allows calculation of risk reward ratios
Disadvantages
• Ideally they require tick data
• The lack of time means they can’t be used for cycle analysis or time/price
analysis like Gann or Elliott

College Level Introduction to Technical Analysis Point and Figure Charting • Page 13