Point and Figure Charts: Box Reversals, Trend Lines, and Trade Rules
Summary
The article explains how to construct point and figure charts from high and low prices using a chosen box size and reversal threshold. Price changes smaller than one box are ignored; rising and falling columns are represented by Xs and Os, and a new column begins when price reverses by the specified number of boxes. It also describes plotting diagonal support and resistance lines and introduces patterns such as breakouts, double tops, and catapults.
The proposed trading guidance is to favor long positions above support and shorts below resistance, use those lines for trailing stops, and apply a vertical count to estimate a potential price objective. A worked crude oil example illustrates the count and a possible reward-to-risk calculation. The document also describes a script that generates charts and compares visual outputs, but the example is illustrative, not evidence of broad predictive performance. Results depend on chart settings and historical price data, and no systematic backtest or risk-adjusted evaluation is provided.
Key ideas
- Point and figure charts filter price changes using a box size and switch columns after a specified reversal.
- The method uses high and low prices to determine whether to extend a column or begin a new one.
- Diagonal support and resistance lines and chart patterns are used to frame trend and breakout interpretations.
- The article suggests placing trades in the direction indicated by support and resistance and using those lines for trailing stops.
- Vertical counts provide a projected price objective, but the example does not establish general predictive reliability.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.