I don’t discuss point and figure enough on this blog, so here is a small contribution.
Q: Why don’t you use point and figure charts?
Candles seem to be very popular.
So, in order to ease you into point and figure, a gentle introduction, here is an idea – present point and figure charts as candlestick charts!
Here is a point and figure chart, it is the ES contract with a 1 point box size and a 1 box reversal (yes, I know, jargon … but any introductory text on PF charts will make clear what these terms mean):
It need not be.
Each column begins when there has been a one (round) point reversal in price. Got that? A new column starts when there is a 1 point reversal in price. I’m not going to go into an introduction to PF here, plenty around on that, so, moving on.
OK, all those crosses and clrcles … you might prefer candlesticks.
So here is a point and figure chart, but instead of crosses and circles in columns I have drawn it using candlesticks. I have put the original PF chart below the ‘candle’ chart, lined up so you can see how the crosses and circles line up with the candles. I have also put in a volume histogram:
So there is a candlestick chart drawn to point and figure principles.
On a 5-minute candlestick chart a new candlestick starts to form when the clock ticks over into a new 5-minute interval (so a new bar starts at 1.00pm, 1.05pm. 1.10pm, 1.15pm etc., etc.. Right?)
On my chart here, a new candlestick begins when the price reverses 1 point. Got it?
That’s a key difference in chart construction and one of the reasons us point and figure tribe use PF charts – instead of a new bar/candle/column starting each time a pre-defined time interval passes, a new column starts only when the price moves in pre-defined manner. There is a lot to this, but I wont go on.
So, there you have it. Give point and figure charts a try. If you wish, do it gently by drawing it just like a candlestick chart. At least its a start. You wont regret it.
ps. Once you have read the introductory material on PF charts, i.e. how to construct them, stop reading. Beyond the basics on how to construct PF charts pretty much all the books I have read on PF are less than useful. Motorway has reference to a few texts that are useful. Other than these read Motorway’s blog and start actually using the charts in your trading.
pps. Point and Figure charts are not some sort of magic. They are charts, OK? Just charts. Albeit charts constructed according to principles that present market data with a high degree of clarity. They are not a ‘system’. Motorway has more on this.