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Point and Figure Charts

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.

 

1-box patterns:

  • 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.

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Units 19/28