Jeremy du Plessis - Point & Figure Charting Webinars CMT

The Power Point and Figure Method
By Frank Testa, CMT

This paper was published in the 2005 issue of the Journal of Technical Analysis.

I. Power Point and Figure (PPF):
Introduction

Point and Figure Charting provides an excellent mechanism for pinpointing precise buy/sell signals, as this charting method is solely concerned with plotting price movements in columns occupied by “X’s” and “O’s” to denote buying and selling pressure, respectively. Adds Thomas Dorsey in Point & Figure Charting: The Essential Application for Forecasting and Tracking Market Prices, “The beauty of this method is its ability to form simple chart patterns that record the battle between supply and demand.” However, the shortcoming of this charting method is its total disregard for the importance that volume plays in the formation of a stock’s pattern. As most market technicians acknowledge, volume often precedes price. To this end, I have devised the Power Point and Figure Method (PPF) as a way of incorporating volume into the Point and Figure method of charting as described in more depth below.

To assess the underlying strength/weakness of a given price move, technicians will often rely upon the total volume of shares traded to assist in this endeavor. For instance, by comparing the stock’s volume to its average daily volume, we are able to determine if the stock attracted unusual buying demand or was the rally accompanied on light trade, which often is a precursor that the buying demand is withering and that a downturn in the stock is imminent. Consequently, the technician that relies solely on charting price movement is vulnerable to missing key red flags. By varying the color of the boxes, we are able to depict the degree of demand/supply or lack thereof of a security. In addition, by making the “X’s” and “O’s” case sensitive, we can gauge the magnitude of the move as described later in this report….

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