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Point & Figure Charts
Why Point & Figure Charts?
Point & Figure (P&F) charts are one of the simplest and clearest ways to determining the best time to buy and sell shares. The P&F system represents one of the oldest approaches to share market trading. This method takes the technical analysts approach while monitoring supply and demand for each share. And the charts are designed for long-term trading so that the time and cost of trading shares is minimal.
How are Point & Figure Charts Constructed?
In P&F charts both axis are dependent on price rather than one being based on price and the other on date. The key unit in a P&F chart is the point, or unit of price. The point size may change in value along the y-axis to provide consistent and relative price movements. This means that a if a share ranges between $8 and $12, the point size may be 10 cents when the share is below $10 and 20 cents when above. An ‘X’ is placed on the chart to indicate an upward movement and an ‘O’ indicates a downward movement. The graph gets its x-axis dimension via three point reversals. A three-point reversal occurs when either:
The price is on a downward trend, then picks up three or more points, or
The price is on an upward trend, then falls by three or more points.
When a three-point reversal occurs, the chart is continued in the next column. Thus every column must contain at least 3 ‘O’s or ‘X’s and constitutes movement in one direction only. The attraction of this method is that insignificant movements in the market are filtered out. Read on ……
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