KnowledgeBase/Documentation

Point & Figure Charting Workbench - User Documentation

StockCharts Support February 01, 2009

Using Point and Figure Charts

What Is A Point and Figure Chart?

P&F Chart

A Point and Figure chart is a study of pure price movement in that time is not taken into consideration while plotting the price action. Since only price changes are recorded, if no price change occurs then the chart is left untouched. A Point and Figure chart is also called a "P&F Chart."

Point & Figure charts use rising columns of X's and descending columns of O's to represent these price movements.

What an investor sees when looking at a P&F chart is the underlying supply and demand of the security. The columns of X's illustrate demand exceeding supply (rally), and the columns of O's illustrate supply exceeding demand (decline).

This article describes the mechanics of using P&F Charts on StockCharts.com. To learn how to analyze and interpret the charts, check out our Chart School.

How Are P&F Charts Calculated?

As stated above, Point & Figure charts show an "X" when prices rise by the amount of the "box size" (a value you specify) and show an "O" when prices fall by the amount of the box size. If prices rise or fall by an amount that is less than the box size, no X's or O's are drawn.

Each column contains a stack of either X's or O's, but rarely both (using a 1 box reversal can result in an X and O stack). Columns will always alternate between X's and O's, and in order to change columns, prices must reverse by the "reversal amount" (another value you specify) multiplied by the box size. For example, if the box size is 5 points and the reversal amount is 3 boxes, then prices must reverse direction 15 points (5 x 3) in order to change columns. If you are in a column of X's, the price must fall 15 points to change to a column of O's. If you are in a column of O's, the price must rise 15 points to change to a column of X's.

The columns of X's and O's represent price trends. So when a column changes, it likewise signals a change in the trend of prices. When a new column of X's appears, it shows that prices are rallying higher. When a new column of Os appears, it shows that prices are moving lower.

Because prices must reverse direction by the reversal amount, the minimum number of X's or Os that can appear in a column is equal to the "reversal amount."

It is common practice is to use the high and low prices (not just the close) to decide if prices have changed enough to display a new box.

Why Use A Point & Figure Chart?

While the SharpCharts workbench is a great tool for charting a security over a period of time, sometimes all an investor is interested in is the actual price movement. P&F charts are great for observing active market activity, and as such are very helpful in identifying support/resistance lines, buy/sell signals, and trendlines.

P&F charts are also very flexible in that they can easily be made more or less sensitive to price changes to discern between long and short term trends. By varying box and reversal sizes, these charts can be adapted to almost any need. There are also many different ways these charts can be used for entry and exit points. As such, all types of investors can benefit from an applied understanding of P&F charting. 

Creating A P&F Chart

The first step in creating a P&F Chart is to know the ticker symbol of the stock or index you are interested in. Each stock has a unique symbol, often recognizable by the company name (eg. Microsoft is "msft"). Others are not so obvious, but any active stock can be found in our symbol catalog which can always be accessed by clicking on the link in the top right corner on StockCharts.com.

With the ticker symbol in mind, there are a few different methods of quickly creating your P&F Chart.

  • Next to the symbol catalog located at the ticker bar in the middle of almost every page, a P&F Chart can be easily created by entering the ticker and clicking Go Button From the Home page please select P&F chart from the drop-down in the "Create a Chart" box.
P_F.png

 


  • The StockCharts.com home page provides a "Start to Chart" box that lets you jump right into charting by just entering the ticker, select P&F from the first drop-down and click Go Button
p_f_start_to_chart.png

 


 


  • Another method is provided within the Free Charts tab that allows you to access all the free StockCharts charting tools. Find the Point & Figure Charts box, enter the ticker symbol and click Screen_shot_2010-01-14_at_12.36.48_PM.png

Screen_shot_2010-01-14_at_12.40.28_PM.png


  • Finally, whenever you see the Point & Figure Chart icon PnF Icon next to a ticker symbol, you can click on it to create the corresponding P&F Chart.

Pnf Icon

Interpreting A P&F Chart

PnF Chart

This is an example of what a typical P&F chart might look like. It has the standard Chart Scale values and Chart Attributes with the "Trend Lines" overlay selected. Notice the time scale on the horizontal axis is not linear, P&F Charting tracks price action whenever it may occur.

ABC 123
Here we see rising columns of X's and falling columns of O's with numbers (1 - 9) and letters (A, B, C) placed within the columns. The number and letters are simply used as monthly indicators, allowing the user to have at least a rough idea of when these price movements occurred aside from the given year markers at the bottom. The numbers 1 - 9 correspond to months January thru September, and to save space, A B & C were assigned to October, November, and December respectively. Therefore, if you saw a "2" in the place of an X, that would indicate that the price rose by the box value in the month of February. Keep in mind that the "2" would not necessarily indicate February 1, it simply signifies that the price movement occurred in the month of February.

Buy/Sell Signals
Upside and downside breakouts can be used as buy and sell signals respectively, and are also vital in the construction of trend lines. When a column of X's rises one box above the top of a previous X column, a buy signal is given. Contrarily, when a column of O's declines one box below a previous O column, a sell signal is given. Decreasing the Box Size will yield more signals as the charting will become more volatile.

Trend Lines
P&F trend lines do not follow the exact same conventions as trend lines for bar charts, and are much less subjective. First, they do not necessarily have to connect previous tops or bottoms. Second, the way they are constructed will always result in them being charted at 45 degree angles (or 135 degrees if decreasing). The red lines represent bearish resistance while the blue lines represent bullish support. From the example chart, notice how the blue support lines are constructed after a buy signal and the red resistance lines are constructed after a sell signal.

Price Objectives
Our P&F charts display a price objective on the vertical price scale as PO. A P&F price objective is the price that a stock should reach based on recent P&F chart signals. Price objectives should not be used as the sole reason for buying or selling a stock - they function simply as a guide based on what the current P&F chart is saying. Stocks frequently move past the price objective and just as frequently reverse before getting to the price objective. The best way to use a price objective is as a cautionary sign - if prices get to the price objective, it might be prudent to monitor the stock more closely and move stops closer in case the move is done. Click here for details on how to measure price objectives.

Stock Bar

Stock Bar

The stock bar is located directly above the P&F chart showing the company name, ticker symbol, the exchange it's traded on, the date, and open/high/low/close/volume/price change statistics. It also shows the price objective for the chart, the style and reversal value, along with any recognized P&F Pattern.

The sample stock bar shows a bearish price objective, meaning that it is lower than the current close price of 83.78. The charting engine also detected a Descending Triple Bottom Breakdown P&F Pattern, implying that the sellers are now creating more supply than there is demand and therefore the prices are breaking down. Click here for more on P&F Pattern Alerts.

Action Bar

Screen_shot_2012-02-23_at_2.50.29_PM.png

The Action Bar is located right below the chart. It contains convenient links that perform common and useful tasks with the chart.

  • Instructions: Links you to this P&F Manual.
  • Understanding: Opens this help page that explains how P&F charts are created and how to interpret them.
  • Print: Re-draws the chart without any of the option areas, for cleaner printing.
  • About P&F Alerts: Opens this help page that explains the various P&F patterns and how to interpret them.
  • About Price Objectives: Opens this help page that explains the various P&F methods for calculating price objectives for a given P&F chart.
  • Historic Data: Opens a page that displays the daily open/high/close/volume statistics for the past two years.

Chart Attributes

Screen_shot_2012-02-23_at_2.50.54_PM.png

Editing the "chart attributes" allows the user to change some technical and visual aspects of the P&F chart. After making any changes to these options, click the Screen_shot_2012-02-23_at_2.51.23_PM.png button.

  • Periods: Specifies the period of the underlying data that will be used to create the P&F Chart for the current ticker symbol. A daily period would use daily chart data, a 10 Minute period would use intraday 10 minute chart data etc.
  • Price Field: Allows the user to select either the underlying data's high and low prices or the close price to be used for calculating the chart. Use the drop-down list to select between the options.
  • Chart Size: Select any size from "Tiny" (305 pixels) to "Giga" (1580 pixels!)
  • Price Plot: Overlays the price of the security above the X and O columns. The price plot just shows the visual shape of the price action, the points do not correspond with the vertical price axis or the horizontal time axis.
  • Volume: Creates a volume histogram below P&F chart with the same duration.
  • Reversal Marker: Marks the level that the price would need to reach for a reversal to occur. If the price reverses to this point, a new column is added to the right.


Basic, Extra and PRO Users:

  • Color Scheme: Just like the SharpCharts workbench, subscribers can choose between a variety of attractive color schemes.
  • Colored Bars: Checking this box will chart different colors for the X and O columns so that advances and declines are even easier to spot.

Chart Scale

Screen_shot_2012-02-23_at_2.52.04_PM.png

Editing the "chart scale" allows the user to change the scaling attributes of the chart that will affect its sensitivity and signals. After making any changes to these options, click the Screen_shot_2012-02-23_at_2.51.23_PM.png button.

 

  • Scaling Method:This affects the chart's box size
    • Traditional: Sets the box size automatically. When this option is used, the amount in the Box Size field will be ignored.
    • Percentage: Increases the box size by a constant percentage each time the price rises above the current box. This method can be helpful when prices change dramatically in a short time, or when price values are very large.
    • User-Defined: Allows you to set the box size for the entire chart. A larger box size filters out less significant price moves.
    • Avg. True Range: Calculates the average true range of the underlying data for the period specified in the ATR Period box and uses this to set the box size for the entire chart. This allows the user to use a box size that takes the volatility of the underlying data into consideration when specifying a box size.
  • Box Size: Sets the Box Size for the current chart. This value works in conjunction with the Scaling parameter. Box Size only applies when Percentage or User Defined Scaling is selected.
  • ATR Period: Sets the number of periods used to calculate the Avg True Range. ATR Period only applies when Avg True Range scaling is selected.
  • Reversal: Sets the Reversal Amount for the current chart. As soon as the price retraces more than the Reversal Amount number of boxes, a new column is added to the right side of the chart. Traditionally, the reversal amount is three. Increasing the reversal amount 'compresses' the chart, since larger point moves are needed to add columns.
  • Scale Factor: Multiplies the underlying data by the number specified (default 1.0) before creating a chart. This allows users to scale the data for a chart like a ratio chart that may have very small numbers in it.
  • Dec Places: Specifies the number of decimal places (default 2) to show for the numbers on the y-axis.
  • Price Objective: A drop-down that allows the user to choose the calculation method for the price objective for the chart.

Duration

Screen_shot_2012-02-23_at_2.52.32_PM.png

The duration field allows the user to specify the end date of the chart. The start date is at the beginning of 1999, but changing the end date allows for longer or shorter trends to be spotted. Trend lines are drawn partially based on the duration.

Selecting Wide Chart extends the range of data, adding more columns. Trend lines are not recalculated, but may be extended if they were previously cut off.

Chart Overlays

Screen_shot_2012-02-23_at_2.52.54_PM.png

Users can select between four different types of chart overlays to help identify trends and signals. After making your selection, click the Screen shot 2012-02-23 at 2.51.23 PM.png button.

  • Trend Lines: This is the default price overlay. It adds 45-degree trend lines that extend from each significant peak or trough until they re-cross the price plot. Trend lines are calculated automatically, the two boxes to the right do not affect the chart.
  • Simple Moving Average: Charts the average (mean) price of the security over a specified number of periods. The first box sets the period, the second box does not affect the chart.
  • Bollinger Bands: Charts a simple moving average in between upper and lower parallel "bands" separated by a specified standard deviation. Click here for more on Bollinger Bands.
  • Price by Volume: Charts a horizontal histogram that overlays a price chart. The length of each bar is determined by the cumulative total of all volume bars for the periods during which the closing price fell within the vertical range of the histogram bar. Click here for more on Price by Volume.

Favorites

Favorite charts is a SharpCharts feature that is only available to Basic, Extra and PRO StockCharts.com members. Saving your favorite stocks and chart patterns makes it easy to analyze stocks that you regularly check without recreating or reconfiguring them. There are two ways to utilize your favorites:

Method 1: Favorites can be quickly accessed, added, edited, or deleted by using the drop-down menu to the right of the ticker box.

Screen_shot_2012-02-23_at_2.57.20_PM.png

  • To access a chart from your favorites list, simply select it from the drop-down menu.
  • To save a chart to your Favorites list from the SharpCharts Results page, click the Add/Modify the current chart link from the Favorites drop-down list above the chart. Enter the chart name in the pop-up window.
  • To change the name of a chart in your Favorites List, click the Add/Modify the current chart link and edit the name of the chart in the pop-up window.
  • To delete a chart from the Favorites list, select the chart and then select Remove from the drop-down list at the top of the page. Or, you can use the Delete the current chart link at the bottom of the SharpCharts Results page. You will be prompted to confirm removal of the chart.

Basic users can store up to 500 different charts in their ChartList.

Extra members can have up to 200 different ChartLists and each list can contain up to 500 different charts. PRO members can have up to 300 different ChartLists and each list can contain up to 500 different charts. This allows Extra and PRO users to easily categorize their charts. For example, you may have one ChartList for your tech stocks, and another ChartList for your index funds. You can then choose which ChartList to save a chart in. Extra and PRO users can also store annotated charts in their lists. See our Extra help page for more information.

Method 2: Another way to manage your favorites is through the links provided at the bottom of the SharpChart.

Screen_shot_2012-02-23_at_2.57.55_PM.png

  • Add/Modify the Current Chart Functions the same as the drop-down box near the top of the page. Enter a chart description into the dialog box that appears or simply press OK to accept the suggested description. This selection can also be used to rename a chart.
  • Delete the Current Chart Functions the same as the drop-down box near the top of the page. Simply press OK to delete the current chart from your favorites.
  • View All Favorites allows the user to see all the charts that have been saved in an organized layout. From here the user can edit chart info, add annotations , or delete the chart.
  • Edit My Favorites allows the user to delete charts, edit chart settings/annotations, move charts to different lists, edit the style of the charts, or add predefined groups of stocks to the list (eg. Dow Industrials).
  • Use the current style on My Favorites in [List Name Here] allows the user to apply the style of the current SharpChart to all favorite charts in the selected list.

Additional Resources

For ore information on creating P&F charts check out our Part 1 and Part 2 tutorial videos.

 
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