Point and Figure Chart: Box Sizes, Reversals, and Price Counts

Key Takeaways

• Box size and reversal amount are the two parameters that control everything; too small a box creates whippy charts, too large a box removes meaningful structure.
• The vertical count (column height × reversal × box size) and horizontal count (consolidation width × reversal × box size) give different price targets, practitioners use the conservative vertical count for position sizing.
• Trading every double top breakout is a common error; relative strength versus the sector filters out the weakest setups and substantially improves breakout success rates.
• P&F bullish percent indices show how many stocks in an index are on P&F buy signals, a high reading warns of an extended market, useful context for portfolio-level risk management.

What It Is

P&F charting predates candlesticks in Western markets. One of the earliest references appears in The Game in Wall Street and How to Successfully Play It, published anonymously under "Hoyle" in 1898. A.W. Cohen later popularized the modern three-box reversal version, and Tom Dorsey extended it into a full methodology used in fund management.

The chart has two parameters: the box size (how many price points equal one X or O) and the reversal amount (how many boxes price must move against the current column before a new column starts, usually three). A new bar prints only when one of those thresholds is crossed.

The Intuition

Time-based charts force a bar onto every five minutes or every day, even when nothing is happening. P&F flips that logic. If price stays inside the box, no mark is added. The chart effectively pauses when the market does, and prints only when meaningful price progress occurs.

That filtering makes trendlines, support, and resistance much easier to see. Pattern detection is also more rule-based than on a candlestick chart, because every column is a discrete object rather than a continuous wiggle.

How It Works

The mechanics turn on three numbers: closing price, box size, and reversal threshold. With a 1-point box and 3-box reversal on a stock currently in an X column at 50, the next X is printed only when price closes at 51 or higher. To start a new O column instead, price must fall by at least 3 boxes, that is to 47 or lower.

Current column: X (rising)
Box size:       1 point
Reversal:       3 boxes
New X if:       close >= top of column + 1
New O column:   close <= top of column - 3

Box scaling can be traditional (a predefined table where higher prices use larger boxes), percentage (each box equals a fixed percent of price, useful across very different price levels), or dynamic ATR (box size equals a multiple of the average true range). StockCharts defaults to traditional scaling, but ATR scaling adapts better to volatile assets.

Two count methods generate price targets. A vertical count measures the height of the breakout column and projects from the start. A horizontal count measures the width of the consolidation across the row that started the move and projects from the breakout level. Both are estimates, not guarantees.

Worked Example

Suppose a stock consolidates between 28 and 32 on a 1-point, 3-box reversal P&F chart for several months. The pattern shows alternating X and O columns inside that range. Eventually price prints an X at 33, a clean double top breakout above the 32 resistance.

Vertical count. The breakout column is six Xs tall, from 28 to 33. With 3-box reversal and box size 1, the projected target is start price plus column height multiplied by the reversal: 28 + (6 * 3 * 1) = 46.

Horizontal count. Across the row at 30, the consolidation spans nine columns. The horizontal projection is 30 + (9 * 3 * 1) = 57.

Two methods, two estimates. Practitioners often use the more conservative vertical count for initial position sizing and treat the horizontal count as a stretch target. Either way, the trade is invalidated if price re-enters the range with a new O column at 27 or below.

Common Mistakes

1. Picking box sizes that hide the structure. Too small a box creates whippy charts that defeat the noise filter. Too large a box smooths away patterns. Tom Dorsey's traditional table is a starting point, but ATR-based scaling typically reads better on volatile names.
2. Trading every double top breakout. Not all breakouts are equal. Pair P&F signals with a relative strength check against the broader market or sector. Weak relative strength makes the breakout much more likely to fail.
3. Trusting price counts as targets. Counts are projections from a model, not commitments by the market. Treat them as planning tools and let stop placement, not the count, decide when to exit.
4. Confusing closing-price and high-low charts. P&F can be built from closes only, or from intraday highs and lows. The same data produces different charts under each method. Pick one and stay with it.
5. Ignoring market context. P&F bullish percent indices summarize how many stocks in an index are on P&F buy signals. A high reading means the market is extended; a low reading means it is washed out. Trading individual P&F charts without that overlay misses important regime information.

Frequently Asked Questions

Q: What is a point and figure chart in simple terms? A point and figure chart records only meaningful price changes using X columns (rising) and O columns (falling), completely ignoring time. A new column forms only when price reverses by the set reversal amount, so quiet periods produce no new marks, the chart captures supply and demand shifts without the clutter of daily bars.

Q: How does a point and figure chart affect investment decisions? It provides clean double top breakout buy signals and double bottom breakdown sell signals with defined stop levels, the count also gives a projected price target, which helps traders set realistic expectations for a position and size it appropriately against initial risk.

Q: What is a real-world example of a point and figure chart? A stock consolidates between 28 and 32 for months on a 1-point, 3-box chart. When price prints 33, a double top breakout fires. The vertical count (28 + 6×3×1 = 46) gives an initial target; the horizontal count (30 + 9×3×1 = 57) gives a stretch target. The trade is invalid if price falls back to 27 and starts a new O column.

Q: How can investors use point and figure charts practically? Fix the scaling method (traditional, percentage, or ATR) before starting analysis, and pair every breakout signal with a relative strength check. One rule: if the stock's P&F chart is on a buy signal but its relative strength versus its sector is declining, skip the trade, weak relative strength turns most P&F breakouts into failures.

Q: How is a point and figure chart different from a Kagi chart? Both filter time and noise, but Kagi uses variable-width lines that change direction only when price reverses by a set amount, and the line thickness changes when a prior high or low is exceeded, signaling a trend change. P&F uses uniform box-and-column notation with objective double-top or double-bottom pattern signals, making it more rule-based and less visual-interpretation-dependent than Kagi.

Sources

1. StockCharts ChartSchool. "Introduction to Point and 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. StockCharts ChartSchool. "Point and Figure 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
3. StockCharts ChartSchool. "P&F Price Objectives: Vertical Counts." https://chartschool.stockcharts.com/table-of-contents/chart-analysis/point-and-figure-charts/p-and-f-price-objectives/p-and-f-price-objectives-vertical-counts
4. Murphy, J. (1999). Technical Analysis of the Financial Markets. New York Institute of Finance. https://archive.org/details/technicalanalysi0000murp

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.