Point and figure chart

The point and figure chart (P&F chart) is a way of displaying price movements that differs fundamentally from other chart types. Price changes are plotted vertically as columns of X's and O's: when prices rise, an X is added; when they fall, an O is added. If a share rises over a longer period, a whole column of X's stacked on top of each other can form. As soon as the price turns and falls by a certain amount, a new column of O's is started to the right of it.

How a point and figure chart works

Two settings determine what the chart looks like:

• Box size: the price change that each X or O represents, for example $1.
• Reversal amount: how far the price must move against the current column before a new column begins – often three boxes.

Example: with a box size of $1 and a three-box reversal, a share that rises from $20 to $25 adds five X's to the current column. Small pullbacks of $1 or $2 are ignored. Only when the price falls by at least $3 – to $22 or below – does the chart start a new column of O's.

Unlike a bar chart or line chart, the point and figure chart has no regular time axis: a new X or O is only added when the price moves by at least one box, no matter how long that takes.

Why point and figure charts matter for traders

Because minor fluctuations are filtered out, point and figure charts reduce market noise and make trends as well as support and resistance levels clearly visible. Classic signals include a column of X's rising above the previous column of X's (a buy signal) and a column of O's falling below the previous column of O's (a sell signal). The method is one of the oldest forms of technical analysis and dates back to the late 19th century.