Point and Figure Charts
Bullish Support And Bearish Resistance Lines
Subjective trend lines (the ones which we draw it ourselves) like the chart in the last unit can be used to good effect, but one of the great advantages of Point and Figure charts is that you can also draw objective trend lines.
The objectivity means that you do not need to decide on the angle of the trend line: it is already established. Because of the 'square' nature of Point and Figure charts, it is possible to draw 45° trend lines, something which is impossible on bar or line charts because of the aspect ratio.
With Point and Figure charts, the aspect ratio is a constant 1: 1 because they are constructed on a squared grid. To maintain a 45° trend, therefore, and the price action above the trend line, the price must rise by more squares up than squares sideways. Squares up or down are created by the price rising or falling by the box size, and squares across are created by the price oscillating without any direction.
Bullish support lines are rising trend lines drawn at 45° from an important low. Bearish resistance lines are falling trend lines drawn at 45° from an important high.
45° lines are not drawn just for the sake of it. They have an important meaning. They show the rate at which the price is rising or falling by one box every time a new column is formed, in other words, every time the price changes direction.
Where to draw bullish support and bearish resistance lines?
Bullish support lines are drawn at 45° up from a known important low point. They are drawn by taking a diagonal through the comers of the square below the low of the lowest column of Os. The advantage is that as soon as a bottom is made, and a column of Os reverses to a column of Xs, the bullish support line can be drawn. So we get an important point from where we can draw the trend line. There is no need to wait for a further reaction to give a second touch point, none is needed. Bearish resistance lines are drawn at 45° down from an important high point in the same way, by drawing a diagonal through the comers of the square above the highest column of Xs.
Drawing 45° bullish support and bearish resistance lines.
When drawing these internal or shorter-term 45° lines, it will be stronger if drawn off an actual reaction high or low, rather than just a single reversal column. This means that those drawn off mini-bottoms or mini-tops are more important than those drawn from a corrective column. For example, trend line 8 is drawn from a mini-top, whereas trend line 3 is drawn from a corrective column. If a trend line is drawn from a corrective column, like trend line 4, and it provides support to a mini-bottom like point B, the trend line is regarded as if it had been started from a mini-bottom. The converse applies to mini-tops.