Point and Figure Charts
What Are Point and Figure Charts?
Point and Figure (P&F) charts are a unique type of chart that plots price movements using columns of "X"s (for rising prices) and "O"s (for falling prices), filtering out minor price fluctuations and the passage of time to focus purely on trend changes.
Point and Figure charts look nothing like traditional candlesticks or bar charts. They resemble a game of Tic-Tac-Toe. Developed in the late 1800s (long before computers), they were designed to be simple enough for floor traders to update with a pencil. The defining feature of P&F charts is that they do not move to the right based on time (minutes, days). They only move based on *price action*. If the price of a stock stays flat for a week, a candlestick chart draws 5 candles. A P&F chart adds nothing. It remains frozen until the price moves. This unique property makes P&F charts incredible noise filters. They remove the chop of insignificant trading activity, leaving only the pure battle between supply (sellers/Os) and demand (buyers/Xs).
Key Takeaways
- P&F charts ignore time; a new column is only added when price changes significantly.
- X represents rising prices (Demand). O represents falling prices (Supply).
- Box Size: The minimum price move required to add an X or O (e.g., $1).
- Reversal Amount: The move required to switch from X to O column (usually 3 boxes).
- They are excellent for filtering out and identifying clear support/resistance.
- Trendlines on P&F charts are drawn at 45-degree angles.
How It Works: Xs and Os
1. **Box Size:** You set a box size (e.g., $1). Every time the price rises by $1, you draw an **X** on top of the previous X. 2. **Reversal Amount:** You set a reversal criteria (typically 3 boxes, or $3). You cannot switch from Xs to Os until the price reverses by at least $3. 3. **The Switch:** Once the price drops by $3, you move one column to the right and start drawing **O**s downwards. Because you need a significant move to reverse columns, P&F charts are inherently trend-following. You stay in an X column as long as the uptrend continues, ignoring minor pullbacks that are less than the reversal amount.
Interpreting the Chart
* **Breakouts:** A "Double Top Buy" signal occurs when a column of Xs rises above the top of the previous column of Xs. This signals demand has overcome resistance. * **Breakdowns:** A "Double Bottom Sell" signal occurs when a column of Os falls below the bottom of the previous column of Os. * **Support/Resistance:** Because P&F charts are built on grid lines, support and resistance levels are extremely clear and unambiguous horizontal lines.
Point & Figure vs. Candlestick
Comparison of the two charting methods.
| Feature | Point & Figure | Candlestick Chart | Best For |
|---|---|---|---|
| Time Axis | Non-linear (ignored) | Linear (time-based) | P&F for Trends |
| Volume | Ignored | Included | Candles for Momentum |
| Noise | Heavily Filtered | All data shown | P&F for Clarity |
| Trendlines | 45-degree mechanical | Subjective drawing | P&F for Objectivity |
| Visual | Xs and Os | Open/High/Low/Close | Candles for Detail |
The Bottom Line
P&F charts are the "silent" chart. Point and Figure charts are a timeless method of price analysis. Through ignoring time and minor volatility, they distill market action down to its essence: the struggle between buyers and sellers. While they take some getting used to, they are powerful tools for long-term investors who want to avoid getting shaken out by short-term market noise. They provide clear, objective signals for entry and exit based purely on significant price changes.
FAQs
Traditionally, no. P&F focuses exclusively on price changes. However, some modern software platforms allow you to overlay volume data on P&F charts.
The most common setting is "3-box reversal." The box size depends on the stock price (e.g., $1 box for stocks trading $20-$100), but the 3-box reversal is the industry standard for filtering noise.
Yes, but it requires small box sizes (e.g., $0.10). However, P&F is traditionally favored by swing traders and long-term investors because its primary strength is filtering out intraday noise.
In P&F charting, trendlines are drawn at 45 degrees from major tops or bottoms. This provides an objective measure of the trend. If the price is above the 45-degree bullish support line, the trend is up. If it breaks, the trend has changed.
The Bottom Line
Investors looking to filter out market noise may consider Point and Figure charts. Point and Figure charts are a time-independent technical analysis technique. Through plotting only significant price moves as Xs and Os, they reveal the underlying trend with crystal clarity. Unlike standard charts that can be messy and subjective, P&F charts offer rigid, mechanical rules for buy and sell signals. They are particularly valuable for identifying support and resistance levels that might be obscured on a standard candlestick chart.
More in Technical Indicators
At a Glance
Key Takeaways
- P&F charts ignore time; a new column is only added when price changes significantly.
- X represents rising prices (Demand). O represents falling prices (Supply).
- Box Size: The minimum price move required to add an X or O (e.g., $1).
- Reversal Amount: The move required to switch from X to O column (usually 3 boxes).