Point and figure charts

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Point and Figure Chart is a form of representation for securities, which is used in technical analysis to analyze price developments. It differs from other chart techniques mainly in that it does not have a time axis, but rather shows the pure price movement. It is mainly used by stock traders in the United States.

Critics doubt whether point and figure analysis, like technical analysis in general, is able to generate an excess return.

history

Charles Dow began to organize and display course data at the end of the 19th century. He called his method "Figuring" and thus laid the foundation for the point and figure method, which is another way of organizing and mapping course data. Since different names were used initially and not everything was published, the exact origin is not clear. The first publication in which the method is described is the work "The game in Wall Street and how to play it successfully", published in 1898 by the anonymous author Hoyle. The term point and figure first appeared in the 1930s by Taylor and DeVilliers in their book "On Point and Figure Charting".

Methodology for creating the charts

Point and figure charts from Deutsche Börse AG

The greatest attention is paid to the course itself. The y-axis is used to display the course values, while the months can only be plotted on the x-axis as a guide. The difference to common coordination systems becomes clear here: where a value is entered does not depend on the x-axis, but what is entered where on the x-axis depends on the value.

The course of the course is plotted according to the following rules: If the course falls, you enter O signs one below the other; if the course rises, you enter X signs one above the other. As soon as the sign of the price movement changes, a new column is started so that no X and O signs can be found in the same column.

To enter the months, the numbers 1–9 are used for the months January to September, while the letters A – C are used for October to December. The reason for this is simply to keep things clear. If a month transition takes place within a column, the abbreviation for the month is entered directly in the column instead of the symbol.

The characters are also referred to as box size (origin of the name: before computers existed, the method was applied to squared paper , in each box there was a character: the box size) and is the previously determined course unit from which course change a new character is entered. This does not have to be a linear scale; a logarithmic scale can also be used. The big advantage is that a logarithmic scale does not show the absolute course change, but the relative one.

Furthermore, it is determined in advance from which course change a new column will begin. The most common are three-point reversal charts, but one-point and five-point reversal charts are also used. The number in the name indicates how many times the course unit the course has to change. (To explain: if, for example, the course unit is set at 0.45, then on a three-point reversal chart, the course must change by 3 * 0.45 = 1.35 in the opposite direction in order to start a new column. )

The figure shows a three-point reversal chart of the adjusted closing prices of Deutsche Börse AG . The box size was € 0.5 and the period from January 1, 2011 to July 1, 2012 was chosen. The chart starts at a value of € 52.69, which is marked with an "S" and marked in green. The price then rises to above € 54.19 before a reversal to € 52.19 takes place - the display changes from X signs to O signs and a new column begins. The months are plotted on the right axis. In addition to the upward and downward movements, the closing prices are also marked in color. This gains additional information as to whether the upward and downward movements are due to one or more values.

Analysis of the charts

Simple buy signal

Many signals can be read from the chart, all of which are based on a basic signal, which is shown on the right in the graph.

A simple buy signal has three pillars. The first and third columns are upward movements and the second column are downward movements. In order for a buy signal to arise, the second pillar must not run more price units downwards than the first pillar went up and the third pillar must also outbid the first by at least one price unit.

In addition to the pure analysis of the charts, it is possible to incorporate further information into the chart: Resistance and support lines are used most often (also called bull and bear lines). These are 45-degree lines which run diagonally downwards or diagonally upwards and begin above the highest and below the lowest point in the diagram. Other popular trend lines are moving averages and Bollinger Bands . But indicators such as the Bullish Percentage Index and the Relative Strength Index (RSI) are also used.

Individual evidence

  1. ↑ Gerth Niermann: Excess returns through point & figure charts: coincidence or system. 2004, p. 14. [1] , accessed on July 11, 2013.
  2. ↑ Thomas J. Dorse: Point and Figure Charting: The Essential Application for Forecasting and Tracking Market Prices. 2007, p. 12.
  3. ↑ Jeremy Plessis: The definitive guide to point and figure. 2005, pp. 27-34.

literature

  • Thomas J. Dorsey: Point and Figure Charting: The Essential Application for Forecasting and Tracking Market Prices. 3. Edition. Wiley 2007, ISBN 978-0-470-04351-6 .
  • Hoyle: The game in Wall Street and how to play it successfully. Cosimo Classics, 2005, ISBN 1-59605-125-6 .
  • Ernest J. Staby: The chartcraft method of point and figure trading: A scientific approach to the mechanics of stock market trading. 1994.
  • Jeremy Du Plessis: The Definitive Guide to Point and Figure. Harriman House, 2005, ISBN 1-897597-63-0 .
  • John A. Bollinger: Bollinger on Bollinger Bands. MxGraw-Hill 2001, ISBN 0-07-137368-3 .
  • AW Cohen: Who to use the Three-Point Reversal Method of Point & Figure stock market trading. Chartcraft, 1968.
  • DeVilliers & Taylor: On Point and Figure Charting. Financial Times Management, 2000, ISBN 0-273-64975-2 .
  • Gerth & Niermann: Excess returns through point & figure charts: coincidence or system? (= Discussion paper 302). University of Hanover, 2004. ISSN  0949-9962 .