Understanding Point and Figure Charts

Hello and welcome to diary of a trader. And today’s video we’re going to go over another type of chart option that’s called point and figure you’ve probably seen this before. If I go up to the trading views different types of charts I can look at where we have bars, hollow candles hiking Nashi line area bass line Renco Lineberry Kagi all those what we want is a point and figure and painting figures is going to be a lot like a light Kagi or Rinko or Gan’s swing charts you know where where with Kagi charts there is no time involved. Pointon figure is only a price driven style and that is all you need to worry about is just price and will notice that you know we have X’s and Os and ultimate you know this is just time based price price movements that don’t take and take into consideration the time. And if we look at this we see that they always represent bearish movement and the Xs represent bullish movement and right now by default what trading we will do as a Senate to ETR and the reversal of Mattice is shown as 3 so that means that we would need three of the Xs or O’s to form a new line and each each line or column as they’re called is only going to have X’s or o’s. So the ETR it says is is point 0 0 0 1 Excuse me 0 1 5. The problem ETR is that it changes and adjusts so it could it could change from one moment to the other so I like to use. I’d recommend that use the static settings so I could go with the box size so each Exar 0 is going to represent. 5 pips.

Okay and then the reversal of the 3 means that so if there is when there are 3 or 15 pips of movement that’s going to reverse the candlestick or sorrier rather than the direction and paint the X’s or the O’s. So if we’re looking at this pound, dollar chart you can see it’s a very actually clean chart because we can, we can really identify where a lot of our trend lines are going to go. We can see there’s a trend there we have a short term trend down here. We can, we can draw our Fibonacci levels like we have sitting here. It’s actually draw our fill level from this swing to swing for a long term Phibbs swing and then we could also drop from the most recent swings as well from here to here. All right and so what is a common or a common way to trade point and figure charts is that let’s say that we know we are, we are in a kind of a consolidated zone here what we would look for to do is that we are trading in this range here, then we would probably want to put a buy level of bov the acts of the prior calm that would be a good buy entry also a good sell entry would be if we were trading up here we took profit. We saw Lo was made, but it didn’t breach a prior column. So we just keep looking and looking and then finally when we see that there is a price that moves beyond the previous low of the column. That’s when we would enter in a short and we can see this kind of progress as we go along.

It’s also very easy to spot areas of support and resistance because they’re very flat levels you know for some people the 5 5 pips is not going to be too fast so you could actually go to 10 pips if we want and that will reduce our reduce our it’ll reduce the trade opportunities to have. But but it will give you more accurate changes. That’s the that’s kind of the danger with a lot of these price only based charts like Ranko and into and Kagi charged range based charts and then all and then we have the point figures that you can be stuck at a certain column for quite some time before it changes, but at that same time you know when you have a smaller brick or a smaller box size then you you run the risk of getting into a lot of false breakouts or are you know you can end up just getting in and out of trades too fast. But then the problem is you think well I should go with a longer time frame or not a longer timeframe a higher box size you get into the problem then of not getting very many signals and so that can sometimes bother people too, but the signals that you would get on the longer time are though not the longest time from the higher box count are going to be more representative of an honest and sustained move.

So certainly as we see here the most recent price action we see that you know when price rallied up a little bit and then we formed a new column of all is when we broke the prior low there you know we can see or actually if you didn’t want to break parallel you could draw a triangle and there was a triangle there when we broke that and painted a 0 then certainly the short trader was correct.

So what are we looking for here, right where we’re at will, close here on the circle was 131 60 and so we are at a 10 PIP counts Brekke. So that means we would have to trade up 30 pips from here so we would need to trade up to 90 so once we got up to 1 31 90 we would end up painting our green Xs on here and then and then and that would tell us that we are getting close to some type of reversal and then ultimately let’s say we had those green Xs fill up this entire column here where we are by A.B we have a couple options we could buy up on a re-entry into this upwards trend line or we can wait till we broke the previous X the previous high of the previous X so we can trade that there to there’s a couple of options but point and figure charts. This is an old school of looking at charts, it’s been around for quite a long time. It’s a very very effective form of trading in fact, if we use if we use the Mukhriz or enough food system the volume profile that is a another tool in our trading toolbox that helps us with trading the point and figure charts, point for your charts again just like Ranko if you’re somebody who struggles with candlesticks and interpreting candlesticks or gets whips out too much candlesticks then maybe something like point figure is a is a chart that chart for you because not everybody can trade candlesticks.

It’s not meant, you know there are various chart styles because they adapt to certain people so yeah. Hope you guys found this video interesting and I look forward to talking with you and our future videos bye.

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