Point-And-Figure Chart
A point-and-figure chart plots price movements for stocks, bonds, commodities, or futures without taking into consideration the passage of time.
Contrary to some other types of charts, like candlesticks, which mark the degree of an asset's movement over set time periods, P&F charts utilize columns consisting of stacked X's or O's, each of which represents a set amount of price movement. The X's illustrate rising prices, while O's represent a falling price.
Technical analysts still utilize concepts such as support and resistance, as well as other patterns, when viewing P&F charts. Some argue that support and resistance levels, as well as breakouts, are more clearly defined on a P&F chart since it filters out tiny price movements and is less susceptible to false breakouts.
Definition: Point and Figure (P&F) chart is a method of plotting the price movements of stocks, bonds, commodities, or futures without considering the passage of time. Unlike other types of charts (such as candlestick charts), P&F charts use columns of stacked Xs or Os, with each X or O representing a certain amount of price movement. X indicates a price increase, while O indicates a price decrease.
Origin: The origin of P&F charts can be traced back to the late 19th century when traders invented this type of chart to simplify the analysis of price movements. The earliest P&F charts were known as 'point charts,' which later evolved into the current P&F charts.
Categories and Characteristics: P&F charts mainly come in two types: traditional P&F charts and modified P&F charts. Traditional P&F charts use fixed price movement units, while modified P&F charts adjust the price movement units based on market volatility. The main characteristics of P&F charts include: 1. Filtering out minor price movements to reduce noise; 2. Clearly displaying support and resistance levels; 3. Being less sensitive to false breakouts.
Specific Cases: Case 1: Suppose a stock's price rises from $100 to $110. A P&F chart will plot an X for each $1 increase, forming a column of Xs. Case 2: If the stock's price then falls from $110 to $105, the P&F chart will plot an O for each $1 decrease, forming a column of Os. These arrangements of Xs and Os help investors identify price trends and breakout points.
Common Questions: 1. Are P&F charts suitable for all markets? P&F charts are mainly suitable for highly volatile markets, such as stock and futures markets. 2. How to determine the price movement unit? The price movement unit can be determined based on the asset's volatility and the investor's preference.
