Key takeaways from Point and Figure charts
Here are some key takeaways from this module so far.
- Point and Figure charts show the demand and supply: demand pushes up a column of Xs, supply pushes down a column of 0s.
- When demand overcomes supply, and an X breaks above the previous column of Xs, a basic Point and Figure buy signal is generated. When supply overcomes demand, and a 0 breaks below the previous column of 0s, a basic Point and Figure sell signal is generated.
- All Point and Figure patterns and signals are based on these basic patterns in various combinations.
- The wider the pattern, or the more times a level is challenged, the stronger the buy or sell signal from the pattern.
- Point and Figure patterns can be continuation, as well as reversal, patterns.
- The ability to breakout, be forced back and then breakout again is a strong sign.
Patterns vary according to the reversal size used.
- Less rigid formations than 3-box patterns.
- Fall essentially into two categories: semi-catapult and fulcrum.
- Semi-catapults are continuation patterns.
- Fulcrums are reversal patterns.
3-box and other box patterns:
- More rigid and recognisable formations than those in 1 -box charts.
- Easier to categorise and name.
- All decompose into either of the 1 -box chart patterns.
- Not every buy and sell signal should be taken, as it could be part of a larger, more complex pattern.
- Always look left to see additional support or resistance.
- Sloping bottoms make patterns more bullish, sloping tops make patterns more bearish, whereas sloping tops and bottoms indicate uncertainty.
- Sideways movement or congestion is an important part of Point and Figure analysis and indicates accumulation at bottoms and distribution at tops.
- Analysis of congestion helps to predict the likely breakout direction.
- Trend lines are vital to Point and Figure analysis and no Point and Figure chart should be drawn without them.
- Trend lines at 45° provide an objective way of establishing trends in 3-box charts.
- Taking note of the trend enhances standard Point and Figure signals.