Point and Figure Charts: Price-Only Trend Analysis

Key Takeaways

• Point and figure charts plot only meaningful price moves using box size and a reversal amount, completely ignoring time and volume to focus purely on supply and demand.
• The standard default is 1-point boxes with a 3-box reversal; a Double Top Breakout occurs when an X column exceeds the prior X column by one box, a bullish entry signal.
• Changing box size and reversal settings to match a desired chart outcome is the most damaging mistake; parameters must be set before analysis, not adjusted after.
• P&F price objectives from vertical and horizontal counts are planning estimates, not obligations, they help set realistic targets for portfolio trades without overstating precision.

What It Is

The style is older than bar charts. It traces back to the late 1800s, when floor traders recorded price flows on ticker tape without the benefit of intraday bars. A.W. Cohen published the modern two-symbol system in 1947 and later founded Chartcraft, the firm that popularized P&F among US technicians. Tom Dorsey and Jeremy du Plessis carried the work forward.

The chart uses two settings: box size (how many points of price movement fill one box) and reversal amount (how many boxes price must move against the current column to start a new column). The standard default is 1-point boxes with a 3-box reversal.

The Intuition

Bar charts and candlesticks show every bar regardless of whether anything important happened. P&F only moves the pen when price does something that meets a threshold. Quiet days do not add ink to the chart. A week of sideways noise might produce no new column at all.

The result is a cleaner picture of trend and breakout behavior. Support and resistance lines become obvious because the chart only records meaningful moves. The tradeoff is that you lose the sense of time and the feel of volume, which is why most technicians treat P&F as a complement to bar charts rather than a replacement.

How It Works

Set a box size and a reversal amount. The box size matches the scale to the asset. A $3 stock might use 0.25-point boxes. A $300 stock might use 2-point boxes. Percentage-based scaling is also common on longer time frames.

The rules for drawing:

If current column is Xs (rising):
  - Add another X for every box-size move up
  - Start a new column of Os only if price falls by (reversal amount x box size)

If current column is Os (falling):
  - Add another O for every box-size move down
  - Start a new column of Xs only if price rises by (reversal amount x box size)

With 1-point boxes and 3-box reversal, a stock in an X column must fall 3 points before you start an O column. Smaller pullbacks do not show up at all.

Key signals emerge from simple patterns:

• Double Top Breakout: an X column exceeds the previous X column by one box. A bullish breakout signal.
• Double Bottom Breakdown: an O column falls below the previous O column by one box. A bearish breakdown signal.
• Triple Top and Triple Bottom: the same logic on the third attempt, treated as a stronger signal by many P&F practitioners.

P&F also supports price-objective projections. The vertical count multiplies the height of a breakout column by the reversal amount to estimate a target. The horizontal count uses the width of a base formation for the same purpose.

Worked Example

Set box size to 1 and reversal amount to 3. A stock has been rising in an X column from 50 to 58, so the current column has nine Xs.

Price now falls to 56. That is a 2-point move, less than the reversal threshold of 3 points. Nothing is drawn. The column stays as Xs.

Price falls further to 55. The total pullback from 58 is now 3 points, which meets the reversal threshold. A new column begins one column to the right, with Os drawn at 57, 56, and 55. The chart now shows a clear top at 58 followed by a 3-box reversal.

If price later rallies back to 59, one box above the prior X column's top of 58, you have a Double Top Breakout. Many P&F traders treat that as a bullish entry trigger, with stops below the prior O column.

Common Mistakes

1. Using defaults without matching the scale. A 1-point box on a $10 stock treats every penny move as trivial. A 1-point box on a $2000 stock produces a chart with almost no columns. Scale the box to the asset.

2. Changing settings to fit the narrative. Different box sizes and reversal amounts produce different signals on the same data. Settling on parameters before analysis prevents the temptation to retune the chart until it shows what you want.

3. Forgetting that small moves are invisible. P&F smooths noise by design, but that means stops placed based on P&F levels can be ambushed by intraday moves the chart never recorded. Cross-check with a bar chart before setting protective stops.

4. Using intraday P&F without clear reversal rules. Short-timeframe P&F needs tight rules about when an intraday move counts as a reversal, otherwise the chart whipsaws. Most professional P&F work is done on end-of-day data.

5. Treating vertical and horizontal counts as predictions. Price objectives are estimates built on proportional logic, not targets price is obligated to hit. Use them as planning tools, not certainties.

Frequently Asked Questions

Q: What are point and figure charts in simple terms? Point and figure charts record only price changes that meet a minimum size threshold, using X columns for rising prices and O columns for falling prices. Time does not appear on the axis, a new column only forms when price reverses by the set reversal amount, filtering out all smaller moves.

Q: How do point and figure charts affect investment decisions? They strip noise and reveal clean support and resistance levels, making breakout signals like the Double Top Breakout clearly visible without the clutter of daily bars. A trader can see at a glance whether a stock has been carving higher highs or lower lows without having to scroll through weeks of intraday data.

Q: What is a real-world example of a point and figure chart signal? With 1-point boxes and a 3-box reversal, a stock in an X column from 50 to 58 reverses 3 points to 55, starting an O column. When price later rallies to 59, one box above the prior X column high of 58, a Double Top Breakout fires, giving many P&F traders a bullish entry trigger with a stop below the prior O column.

Q: How can investors use point and figure charts practically? Lock in box size and reversal parameters before you start analyzing, based on the asset's typical price range. One rule: check the P&F chart alongside a standard bar chart before placing a stop, because intraday moves that never appear on a P&F chart can still hit a stop placed at a bar-chart support level.

Q: How are point and figure charts different from Renko charts? Both filter price noise using a fixed price threshold, but Renko plots equal-sized brick shapes on a diagonal while P&F uses vertical X and O columns. P&F preserves more structural detail through its double-top and double-bottom pattern signals; Renko emphasizes trend direction more cleanly but generates fewer distinct pattern signals.

Sources

1. StockCharts ChartSchool. "Introduction to Point & Figure Charts." https://chartschool.stockcharts.com/table-of-contents/chart-analysis/point-and-figure-charts/point-and-figure-basics/introduction-to-point-and-figure-charts
2. Investopedia. "Point-and-Figure Chart." https://www.investopedia.com/terms/p/pointandfigurechart.asp
3. StockCharts ChartSchool. "P&F Scaling and Timeframes." https://chartschool.stockcharts.com/table-of-contents/chart-analysis/point-and-figure-charts/point-and-figure-basics/point-and-figure-scaling-and-timeframes

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.