POINT AND FIGURE CHART:
The point and figure chart indicates intraday, daily, weekly, monthly increase and declines of scrip prices. Which can be plotted for finding patterns and their breakouts.
This study is one of the most popular among the stock traders.
P&F requires 100% concentration on the changing prices of the scrip, and plotting them on the graph paper is another hectic task. This makes P&F chart tedious to be plotted for extended hours, manually.
The motive behind P&F chart is that they help to screen out less important price movement and allows one to focus on the most significant trend.
Three Box Reversal Chart
Point and Figure chart display an “X” when prices rise by the box size (a specified value) and display an “O” when prices fall by the box size.
Each column can contain either Xs or Os, but never both. In order to change columns (e.g., from X column to O column), prices must reverse by the “reversal amount” (another specified value) multiplied by the box size. For Example,
If the box size is 5 paisa and the reversal amount is three boxes, and then prices must reverse direction 15 paisas (5x3=15) in order to change columns.
If you are in column of Xs, the price must fall 15 paisas to change to a column of Os, the price must raise 15 paisas to change to a column of Xs.
The changing of columns identifies a change in trend of prices. When a new column of Xs appears it shows that prices are rallying higher. When a new column of Os appears, it shows that prices are moving lower.
Because prices must reverse direction by the reversal amount, the minimum number of Xs to Os that can appear in a column is equal to the “reversal amount”.
The common practice is to use the high and low prices to decided if prices have changed enough to display a new box.