Point and Figure Chart Basic
The basic point and figure chart shows a column of X's which means the stock or index is rising. A column of O's means the stock is falling. Columns of X's and O's alternate back and forth -- they never appear in the same column. For the first action taken in a month, a number or letter is used to designate that particular month. This is how we show the time on the chart.
It takes 3 boxes to reverse from one direction to the other. For example, if a stock were trading in a column of X's with a top of 45, it would take a move to 42 to reverse this chart to a column of O's. Going in the other direction, if a stock were trading in a column of O's with a current low at 45, it would need a rally to 48 to reverse the stock back to a column of X's.
Units of Charting :
0 - 5 = 1/4 point per box
5 1/2 - 20 = 1/2 point per box
21 - 100 = 1 point per box
102 – 200 = 2 points per box
200 + = 4 points per box
Given the price of security XYZ, determine the box value and write the appropriate range of prices in the left margin of the point and figure grid. Start the chart with the number (or letter) corresponding to the present month and place it in the box with the value equal to the previous day’s closing price. Depending on whether the stock price rises or falls during the day, add Xs or Os as required. If the price does not rise or fall the value of one or more boxes, make no chart entry.
If the last entry on the chart is an X, check the stock’s daily high. Add Xs if the stock has gone up one or more units on your grid. If the stock has gone down, look at the daily low to see if a three box reversal has occurred. If so, move over one column and down one row and enter the appropriate number of Os. Make no chart entry if the stock has not moved up enough to warrant more Xs or down enough to receive at least three Os.
If the last entry on the chart is an O, check the stock’s daily low. Add Os if the stock has gone down one or more units on your grid. If the stock has gone up, look at the daily high to see if a three box reversal has occurred. If so, move over one column and up one row and enter the appropriate number of Xs. Make no chart entry if the stock has not moved down enough to warrant more Os or up enough to receive at least three Xs.
Reference to time is made by entering the first action of each month with that month’s number in the grid. For example the first X or O in May would be replaced with a "5". The months October through December are noted by A, B, and C, respectively. It is also useful to write the year below the column in which there is an entry for January of that year.
Here are two examples of how a chart develops.