Point and figure chart

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    A point and figure chart is a type of price chart used in trading that shows the price movement of a security.

    The point and figure chart’s distinguishing feature is that it doesn’t take time into account. Instead, it uses stacked columns that display rises and falls in the price. The rising price is usually represented by an X in its column, while the falling price is represented by an O. X and O are never mixed together in a column – they have their own separate columns side by side.

    Because the chart doesn’t track the passage of time, it filters out any small, temporary changes in price and instead shows the overall movement. This means the can quickly see where the important support and resistance levels are and decide to buy or sell when the price moves beyond them.

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    If the price of a security rises or falls beyond a pre-determined amount, more points are added to the chart – this is called a box size. The new points always going to the right of the last column – thus the chart is always read from left to right. The box size can be set at any agreed amount.

    Let’s suppose you are trading shares for Company A and the price is $100 per share. If the box size has been set at 2, then once the share price moves above $102 then a new X will be added to the stack in the rising column. If the share then falls below the box size to $98 a new O column will be created to the rise of the previous X column.

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