Trading Glossary

Point and figure chart

Point and figure chart. The point and figure chart differs from other price charts in that its time axis is not constant--prices are not plotted day by day or week by week, etc. Instead, point-and-figure charts use columns of ascending Xs and descending Os to portray up moves and down moves (of a certain magnitude), respectively, in a market.

For example, every X might represent a .5 point rise (referred to as the "box size") in the stock's price. Price declines would only be denoted by a column of Os if price fell, say, 1.5 points (three boxes, referred to as the "reversal amount"). In this case, if the stock rose from 25 to 25.5 to 26 to 26.5, you would add three Xs to your column of Xs, one for each .5 point rise from 25 to 26.5. If it rose only a quarter point or a half-point, or declined only a point, you would do nothing. Only when price dropped by 1.5 points or more would you stop adding ascending Xs and start a column of descending Os immediately to the right.

The larger the box size and reversal amount you use, the less sensitive your chart will be to smaller price fluctuations. Because a one-point move (or whatever increment you use for your box size) may occur in one hour or two days, the price action depicted in a point-and-figure chart is independent of time.

The example below shows a point-and-figure chart using a box size of .5 points and a reversal size of 1.5 points.

Figure 8. Point and figure chart, Dell Computer.

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