Elearnmarkets - Financial Market Learning
  • Courses
  • Webinars
  • Stories
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
Get Free Course
  • Basic Finance
  • Derivatives
    • Futures
    • Options
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Mutual Funds
  • Marketshala
  • Miscellaneous
Elearnmarkets - Learn Stock Market, trading, investing for Free
  • Courses
  • Webinars
  • Stories
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
Get Free Course
Elearnmarkets - Learn Stock Market, trading, investing for Free
No Result
View All Result
Home Technical Analysis
How to Trade using Point and Figure Chart? 1

How to Trade using Point and Figure Chart?

Elearnmarkets by Elearnmarkets
May 24, 2024
in Technical Analysis, Charts, Patterns & Indicators
Reading Time: 9 mins read
0
13.6k
VIEWS
Share on FacebookShare on XShare on WhatsApp

Point and Figure Charting is a kind of technical chart that was developed in the late 1800s.

Traders can trade and also do technical analysis by using Point and Figure Charting other than the bar and candlestick charts.

A point-and-figure chart plots movements of the prices such as stocks, commodities, or futures without considering the time.

As compared to other technical charts like candlesticks, which plot the price movement of the financial assets over set time periods, point-and-figure chart plots prices in the columns which consist of stacked X’s or O’s, each of which represents a fixed amount of price movement.

The X’s show the rising prices, while O’s shows a falling price.

Table Of Contents
  1. What Is a Point-and-Figure (P&F) Chart?
  2. How to construct a Point-and-Figure Chart?
    • 1. A box size parameter:
    • 2. Reversal Parameter:
    • 3. The Price Data:
  3. How to analyse a Point-and-Figure Chart?
  4. Point and Figure Chart Patterns:
    • 1. Bullish Patterns:
      • 1. Double Top Breakout:
      • 2. Triple Top Breakout:
      • 3. Quadruple Top Breakout:
  5. 2. Bearish Patterns:
    • 1. Double Bottom Breakout:
    • 2. Triple Bottom Breakout:
    • 3. Quadruple Bottom Breakout:
  6. Difference between Renko and a Point-and-Figure Charting:
  7. Advantages of a Point-and-Figure Chart:
  8. Limitations of a Point-and-Figure Chart:
  9. Bottomline:

In this blog we will discuss about the basics of Point and Figure Charting and how traders can trade using this type of technical chart:

What Is a Point-and-Figure (P&F) Chart?

Point and Figure is a type of technical chart which is one of the oldest tools used in trading.

It was first written in the Wall Street Journal in the early 1900s by a writer and there is not one person who can claim to be known as the discoverer of this chart.

Traders used various methods for recording the price action in the early trading days. The point and figure were developed for the purpose of removing the unnecessary noise in the market.

 This figure chart that showed the prices of an asset was the first to be used.

Now let us discuss how the Point and Figure Chart can be constructed:

How to construct a Point-and-Figure Chart?

The point-and-figure chart plots prices in the columns consisting of X’s or O’s, each of which represents a fixed amount of price movement.

The X’s show the rise in the prices, whereas the O’s shows a falling price as shown below:

How to Trade using Point and Figure Chart? 2

To construct Point and Figure chart, we need three main components:

1. A box size parameter:

The box size can be a specific amount, such as, a percentage, like 3% of the current price, or can be based on an average true range (ATR) which means the box size will fluctuate based on volatility.

The box size can be determined by:

  • Percentage box scaling that uses box sizes which are a fixed percentage of the stock’s price. For example, if a chart uses 3% scaling and the stock’s price is Rs. 100, then the box size will be Rs. 3.00.
  • Average True Range that uses the box size based on the daily Average True Range (ATR). The default is usually set at 20 days.
  • User-Defined box scaling allows users to set the box size. Larger box size will result in more price movements and also fewer reversals. A smaller box size will result in fewer price movements and more reversals.

2. Reversal Parameter:

The reversal amount is usually three times the box size. For example, if the box size is Rs 1, then the reversal amount is Rs. 3. The reversal amount can be set at any amount which the trader desires, such as one time or 5.5 times the box size.

3. The Price Data:

Traders can also set high and low prices or use closing prices. By using high and low prices it will mean the creation of more X’s and O’s, whereas using only closing prices will mean fewer X’s and O’s are created.

How to analyse a Point-and-Figure Chart?

Just like the candlesticks and bar charts we can use technical indicators like moving averages, supports, resistance and chart patterns to analyse the price movements on the Point and Figure Charts.

Traders should look for four things on a Point & Figure chart:

  • Support levels
  • Resistance levels
  • Upward trend lines
  • Downward trend lines

Support levels are easy to spot on Point and Figure charts. Traders can draw a horizontal line at the low of a sequence of O-Columns with equal lows.

How to Trade using Point and Figure Chart? 3

Traders can draw a horizontal Resistance line at the high of a sequence of X-Columns with equal highs.

How to Trade using Point and Figure Chart? 4

In Point and figure charts, an upward-sloping trend line is known as the Bullish Support Line, whereas a downward-sloping trend line is known as the Bearish Resistance Line as shown below:

Point and Figure Chart Patterns:

The Point and Figure charts patterns can be bullish or bearish chart patterns:

1. Bullish Patterns:

Below are the main bullish patterns which help to analyse breakout on the Point and Figure charts:

1. Double Top Breakout:

In the Point and Figure charts, Double Top Breakouts are bullish whereas with the bar charts Double Top Breakouts are bearish patterns.

In the Point and Figure chart, the buy signal is when an X-Column breaks above the high of the prior X-Column. These two columns are separated by an O-Column as shown below:

How to Trade using Point and Figure Chart? 5
2. Triple Top Breakout:

In the Triple Top Breakout, there is one more column of X as compared to the  Double Top Breakout. The third X-Column breaks above the prior two X-Columns to make the Triple Top Breakout as shown below:

How to Trade using Point and Figure Chart? 6
3. Quadruple Top Breakout:

The Quadruple Top Breakout is the same as the Triple Top Breakout, only with an extra X-Column and an O-Column for widening the pattern. The breakout from the fourth column of X confirms the Quadruple Top Breakout as shown below:

How to Trade using Point and Figure Chart? 7

2. Bearish Patterns:

Below are the main bearish patterns which help to analyse breakout on the Point and Figure charts:

1. Double Bottom Breakout:

In the Point and Figure charts, Double Bottom Breakouts are bearish whereas with the bar charts Double Bottom Breakouts are bullish patterns.

In the Point and Figure chart, the sell signal is when the O-Column breaks below the low of the prior O-Column. These two columns are separated by X-Column as shown below:

Double bottom breakout in Point and Figure Chart
2. Triple Bottom Breakout:

In the Triple Top Breakout, there is one more column of O as compared to the Triple Bottom Breakout. The third O-Column breaks below the prior two O-Columns to make the Triple Bottom Breakout as shown below:

How to Trade using Point and Figure Chart? 8
3. Quadruple Bottom Breakout:

The Quadruple Bottom Breakout is the same as the Triple Bottom Breakout, only with an extra O-Column and an X-Column for widening the pattern. The breakout from the fourth column of X confirms the Quadruple Bottom Breakout.

Difference between Renko and a Point-and-Figure Charting:

Renko Charts also uses box size, and when the price moves by the specific box size it creates an up or down brick that moves at a 45-degree angle.

The main difference between the Point and Figure and the Renko charts is the chart type. Point and Figures charts have side-by-side columns of X’s and O’s, whereas a Renko chart is created by a series of boxes which are spread out over time at 45-degree angles as shown below:

difference between Point and Figure Chart and Renko Charts

Advantages of a Point-and-Figure Chart:

As the Point and Figure charts are one-dimensional i.e. focused only on price changes and not time, it offers many benefits to the traders as well as the analysts.

Below are its benefits:

  • It helps in filtering out market noise from the charts.
  • It provides easy visualization of support and resistance levels.
  • It is a timeless tool for price movement analysis.
  • It also helps a trader in focusing on the important price movements.

Limitations of a Point-and-Figure Chart:

One of the main limitations of Point and Figure charts is that it reacts slowly to the price changes.

For example, a breakout must move the box amount for signalling a breakout to occur. This may benefit some traders as it reduces false breakout signals, but the price has already moved the box amount (or more) beyond the breakout point.

So, for some traders, getting the signal after the price has moved may not be that effective for their trading.

Bottomline:

Point and Figure charts are good for analysing strong trends, as a lot of small counter-trend movements are cut out. When traders use Point and Figure charts, they should also watch the actual price of the asset for reducing risk. This can be done by analysing candlestick or bar charts.

Happy Investing!

For more stock related queries visit web.stockedge.com

Tags: basicpoint and figure chartstechnical analysistechnical charts
ShareTweetSend
Get Kotak Offer Get Kotak Offer Get Kotak Offer
Previous Post

How should one read the Financial News Sections of the Newspapers?

Next Post

Initial Public Offering (IPO)- 10 Things to Check Before Investing in an IPO

Elearnmarkets

Elearnmarkets

Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. You can connect with us on Twitter @elearnmarkets.

Related Posts

Understand Slippage in Trading
Technical Analysis

What is Slippage in Trading? Meaning & Examples

March 28, 2025
284
Breakout trading strategies
Technical Analysis

Top 5 Breakout Trading Strategies

March 12, 2025
1k
5 stocks for today
Technical Analysis

5 Stocks to Buy Today That Could Beat the NIFTY in 2025!

May 5, 2025
390
Image describing What is marginal trading facility
Technical Analysis

 What is a Margin Trading Facility? Advantages & Risks

April 4, 2025
657

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Disclaimer

Elearnmarkets (Kredent InfoEdge Pvt. Ltd.) is a SEBI-registered Research Analyst (RA) entity (SEBI Registration No.: INH300007493). The information provided in this article is for educational and informational purposes only and should not be considered as an offer to buy or sell any securities or investment products.

The stocks, securities, and investment instruments mentioned herein are not recommendations under SEBI (Research Analysts) Regulations, 2014. Readers are advised to conduct their own due diligence and seek independent financial advice before making any investment decisions.

Investments in securities markets are subject to market risks. Please read all related documents carefully before investing. Investing in Equity Shares,
Derivatives, Mutual Funds, or other instruments carry inherent risks, including potential loss of capital. Elearnmarkets (Kredent InfoEdge Pvt. Ltd.) does not provide any guarantee or assurance of returns on any investments. Past performance is not indicative of future performance.

Elearnmarkets Logo

Follow Us

Facebook-f X-twitter Instagram Linkedin-in Youtube Telegram

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Register Free Account

Download App

Playstore logo
Download on app store

Categories

  • Basic Finance
  • Derivatives
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Mutual Funds
  • Miscellaneous

Popular On Elearnmarkets

  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati

© 2025 Elearnmarkets. All Rights Reserved

  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling
  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling

Download Our App

No Result
View All Result
  • Article Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • ETFs & Mutual Funds
    • Marketshala
    • Miscellaneous
  • Language
    • Hindi
    • Bengali
    • English
  • Courses
  • Webinars
  • Stories
Get Free Course

© 2024 Elearnmarkets All Rights Reserved

A Handbook of Technical Analysis
To start your trading journey as a seasoned technical analyst
Download Guide For FREE
Guidebook On Chart Patterns
Take Your Trading To The Next Level With Strategies Shared In This Ebook
Download Guide For FREE
Trading Day 2025