Now let's say the price moves up to 1.25 without going to zero. Our chart will now look like the chart below
I labeled it as a double top buy signal. This is one of the patterns where the standard book on Pnf will tell you to buy. Do I buy. It depends. Right now the only information we have is the bulls(x's) are winning the supply/demand battle at the moment.
Jimmy I hope to change your mind about trading it in futures. My main problem is having a platform that gives reliable pnf information on a timely basis. You always have to stay ahead of the game, and know exactly at what price it will reverse at all times.
Ok, before we go on, lets talk about trendlines. There is only one way to draw a trendline in pnf. There is no way you can get it wrong. All trendlines are 45 degree and in this case it would start at the bottom of the first x column and move up.
I also need to mention that when you daytrade you don't use the standard box sizes I mentioned earlier. We will get into that later, but those box sizes are for swing trading only. A daytrader has to be more nimble.
OK let's get some of the standard buy and sell signals out of the way.
The common patterns are called
Double top buy
double bottom sell
Triple top buy
Triple top sell
Traingle buy signals
Triangle sell signals
Bullish Signal Reversed
Bearish Signal Reversed
Long Pole up
Long pole down
As Jimmy mentioned, I strongly suggest Point and Figure Charting by Thomas Dorsey. His latest book comes with a cd that is very helpful.
Thank you all for contributing. There are many sites available on the internet that probably explain the basics better than I can. I hope to give you all something that will prevent you from making large errors in trading, and at the same time give you some things that are not in any book.
For review here is a double top buy and sell signal.