In the last unit, we focused on the origin of Point and Figure Charts. Now, let us learn some of its characteristics.
Point and Figure charts have the following unique features, all of which are explained in greater detail below:
- They are usually constructed with Xs' and Os' instead of lines or bars.
- Xs represent up movements in price.
- Os represent down movements in price.
- The Xs and Os are called 'boxes'
- Each X and 0 represents a discrete price interval, which is called the 'box size'.
- Price changes below this interval are ignored when plotting the chart.
- A column of Xs changes to a column of Os (and vice versa) when the price changes direction by a given number of boxes.
- This is called the 'reversal size' which is a very important aspect of point and figure.
- The columns of Xs and Os represent demand and supply.
- The chart sensitivity can be varied to show the short, medium and long-term position using the same data.
- No record is made of price gaps.
- Price is scaled on the vertical Y axis.
- There is no time-scale along the horizontal X axis.
- Time plays no part in the construction or analysis of Point and Figure charts.
- Although there is no time axis, Point and Figure charts are two-dimensional charts.
- Volume plays no part in the construction or analysis of Point and Figure charts.
- Point and Figure charts are named according to their box and reversal size.