Mike
08-04-2011, 02:11 PM
There are two definitive texts on Point and Figure Charting.
1. The Definitive Guide to Point and Figure by Jeremy du Plessis (I own this)
2. Point and Figure Charting by Tom Dorsey (Thanks Pierre for this)
I will be unable to give the topic the kind of detail contained in these references. I will discuss only vertical counts in this post.
I augument CANSLIM investing with some of the P&F tools such as price target setting as P&F charting works on longer time frames of interest to an intermediate term trader. I usually use the default charts at stockcharts.com which are 3-box reversal charts. There is a lot of tutorial information on the stockcharts.com site as well as Dorseywright.com. It should be said that the process creates estimates and should be treated as just that. They can be accurate at times however.
With the first (or second) move up off the bottom (1st column of X's after a bottom has been made) you can count the number of X's in that column. You set a price target by multiplying the number of boxes times the box size (in dollars) times the number of boxes in a reversal (3 in the traditional case). You have to wait for the column to complete (new column of O's started). You add the calculated figure to the value of the bottom box in the prior O's column (immediately to the left of the row counted).
The process is reversed for tops which will be my example below.
For the NASDAQ (symbol $COMPQ) chart top the box size is $50 at this price range. The column of O's that produced the double bottom sell signal in June was five boxes high. So we expect a drop of 5*$50*3 = 750 points. This is subtraced from 2850 the price of the highest X in the prior column. So the vertical count price target is 2850 - 750 = 2100
If the market shoots straight down from here painting additional O's without painting a new column of X's this will be the second move down and I will be counting the number of boxes in this column for a new estimate. The length of the current colum is 5 and the base is the same 2850 level so if this becomes a completed column of five boxes it will lead to the same 2100 target.
1. The Definitive Guide to Point and Figure by Jeremy du Plessis (I own this)
2. Point and Figure Charting by Tom Dorsey (Thanks Pierre for this)
I will be unable to give the topic the kind of detail contained in these references. I will discuss only vertical counts in this post.
I augument CANSLIM investing with some of the P&F tools such as price target setting as P&F charting works on longer time frames of interest to an intermediate term trader. I usually use the default charts at stockcharts.com which are 3-box reversal charts. There is a lot of tutorial information on the stockcharts.com site as well as Dorseywright.com. It should be said that the process creates estimates and should be treated as just that. They can be accurate at times however.
With the first (or second) move up off the bottom (1st column of X's after a bottom has been made) you can count the number of X's in that column. You set a price target by multiplying the number of boxes times the box size (in dollars) times the number of boxes in a reversal (3 in the traditional case). You have to wait for the column to complete (new column of O's started). You add the calculated figure to the value of the bottom box in the prior O's column (immediately to the left of the row counted).
The process is reversed for tops which will be my example below.
For the NASDAQ (symbol $COMPQ) chart top the box size is $50 at this price range. The column of O's that produced the double bottom sell signal in June was five boxes high. So we expect a drop of 5*$50*3 = 750 points. This is subtraced from 2850 the price of the highest X in the prior column. So the vertical count price target is 2850 - 750 = 2100
If the market shoots straight down from here painting additional O's without painting a new column of X's this will be the second move down and I will be counting the number of boxes in this column for a new estimate. The length of the current colum is 5 and the base is the same 2850 level so if this becomes a completed column of five boxes it will lead to the same 2100 target.