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Point and figure chart

It was already mentioned that point and figure charts are different in the way they are drawn. They don't have separate point on x axis for each time unit. Spreading on x axis depends on the movement of prices of financial instruments. Another characteristic of point and figure chart is that it can not display trading volume. Volume can only be displayed on intraday chart. The influence of the volume is reflected in the number of price changes recorded on the chart.

To illustrate how intraday point and figure charts are constructed, I will show you an example:

Construct 5x1 intraday point and figure chart based on the following data:
• Day 04/29: 4875, 4880, 4860, 4865, 4850, 4860, 4855
• Day 05/02: 4870, 4860

Solution: first to clarify what it means to 5x1 intraday chart. The first number (5) determines the size of the box, and the second number is reversal criteria.

Column 1: put dot on the 4875. Since 4880 is greater then 4875, fill Xs to the cell 4880. Because box size is 5 points, only one box should be filled.
Column 2: the number 4860 is less than 4880, so you should move to the new column and fill out Os. First you need to move one box down and draw Os up to 4860 (four Os).
Column 3: the next number is the 4865. It is greater than the previous, so you should move to a new column and one box up and put an X. The next number is the 4850. Following the previous logic, you should put the Os in the new column, but since chart is drawn with 1 box reversal (5x1) this means that each column must have at least two cells. Therefore, fill the Os in the current column to the cell 4850.
Column 4: the next number is the 4860. It is greater than previous and you should move to the new column and one box up to fill out Xs to the 4860 (two Xs).
Column 5: The number 4855 is next, it is less than the previous so you should move to the next column and one box down and set O The next number is the 4870. It is greater than previous, but again as in column five, there is only one cell, so continue drawing in the current column. Fill Xs to 4870. Another important thing is that the number 4870 belongs to the next day, and therefore the last box should be marked in order to help chartist to read data.
Column 6: The next number is the 4860. It is smaller than previous and should move to the next column and one cell down to fill the two Os.

Point and figure example
Intraday point and figure 5x1

Daily point and figure charts are drawn based on daily highs and lows. For example, if the previous column is ending with X then high value of next day is considered. If the value is greater than the value of the previous X, then Xs are filled all to the appropriate box. If it is less, then low value is considered. If a reversal criterion is fulfilled then a new column is drawn with Os filled. For the columns ending with O, similar logic is applied, you just have to follow the rules of drawing point and figure chart.

Point and figure example

The advantage of point and figure charts is that they have better visibility. Because they display only price changes, it is easier to identify the trend, and therefore the buying and selling signals.

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