Learning to read Price Action with P&F Charting

Nice call Yayt. I know you were using Close only and I use Hi/Low, but they both showed about the same thing

 

what is a good program for intraday PF charts? Thanks.

 

Thanks; if you notice, the low of NFG on Friday was 27.07, right around the support we hit a couple of years ago. If things start to move in the other direction I think I might go long NFG; good trade though!

 

I currently use Quotetracker (free).

I evaluated Updata Technical Analyst (VERY cheap considering its' quality!) - it is an amazing program that I will upgrade to in a little while.

Dentist007 uses this program as well.

 

Thanks alot, I will try out quotetracker for a few days to see how the charts workout.

 

does anybody have a name for this chart pattern.?
a 1 box reversal hilo data.0.5% box size
i am thinking of: fishing line with a hook

 

The Screaming Buy?

- or, alternatively -

The Screaming Sell?

- or, alternatively -

The Screaming in general?

 

Here's an article on P&F Box Sizing.

Enjoy

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Part I

I’m going to paste a document that is in line with what I’m looking for, is that people who explain the procedure for use and how to build graphics to guide us.

Determining the Box Size on P&F Charts Determining the Box Size on P & F Charts

By Colin Nicholson

Point and figure charting originated on Wall Street. US prices per share are, by custom, much higher than in Australia. The most common box size for point and figure charts was one dollar, which was known in that market as one ‘point’. This is the most likely origin of the ‘point’ in ‘point and figure’ — the charts were scaled as one dollar per box. There are other customary differences on Wall Street, such as quoting prices in eighths, quarters and halves that make it difficult at times to apply their text books to our markets, which are quoted in decimal units of currency.

While most of the point and figure charts drawn on Wall Street were scaled at one dollar per box, both low priced stocks and high priced stocks required an adjustment of the box size. Extension of the technique to futures markets also required different box sizes, both because of the different prices of the contracts, and because of the character of the trading and the generally shorter-term emphasis in that trading.
Point and figure charting has a large element of filtering of the price action as recorded on the charts. This allows enormous flexibility in the method, allowing use for very long-term studies and also for intra-day trading. The primary method of condensing a point and figure chart is by changing the box size.

The choice of box size will depend upon the price range over which the instrument trades and also on the time frame in which the analyst wishes to use the chart. It is very common for a point and figure chartist to have more than one chart of a given instrument. For example, take BHP, which is the largest stock on the Australian market. The analyst might have a 50 cent box size chart for long-term studies, a 20 or 25 cent box size chart for medium term studies and a 10 cent box size chart for timing entry and exit to the market. This is somewhat akin to using monthly, weekly and daily or weekly, daily and hourly bar charts.

However, while these divisions of time work quite well for most markets in bar charts, a similar clear rule does not exist for point and figure charts. This is a source of difficulty for beginners, who are looking for rules to follow. The reality is that different instruments and markets trade with a different character, and the box size must be adjusted to suit. There is no getting away from this element of art or judgement in the method.
Indeed, its existence is a strength of the method, when one considers the purpose of the charts. The purpose is to judge what is happening to the balance of supply and demand in the market. The flexibility to change box size will often allow the skilled analyst to better identify what is happening.

However, it is possible to give some starting point guidelines for box size, from which the analyst must experiment. The guideline is to take the range over which prices have varied historically, or over which you expect them to vary, and determine a mid point price for this range. Then use a box size that is about two percent of the mid point price.

When starting a chart for a new instrument, start off with a box size that is two percent of the initial price. As you would expect, this guideline works best when prices are near the mid point. When prices move towards the historical extremes, larger or smaller box sizes will be needed to study recent price action effectively.

 

Part II

There is another dimension to the choice of box size. This hinges on the consideration that it was much easier to maintain longer-term hand drawn charts directly from the basic chart, rather than from the original data. For this reason, we try to keep the box sizes such that each larger box is twice the smaller one. This was easy on Wall Street, where the smallest quotes were in eighths, so the chart sizes were eighths, quarters, halves, dollars and so on. However, in Australia, the lowest share price is one tenth of a cent. This drives the starting point, and the sequence of box sizes would be 0.1c, 0.2c, 0.4c, 0.8c, 1.6c, 3.2c and so on, if it were not for the need to take another consideration into account.

This is a phenomenon of support and resistance levels — that people tend to think and bid/offer prices in round numbers — the so-called ‘psychologically important’ numbers that occur in all markets. Since the primary reason behind filtering the prices in the point and figure method is to detect when the price breaks beyond support and resistance levels, it is highly desirable to use round numbers in choosing box sizes.

Thus, the convention is to use the sequence 0.1c, 0.2c, 0.5c, 1c, 2c, 5c, 10c, 20c, (sometimes 25c), 50c, $1.00, $2.00, $5.00 and so on. It is therefore necessary to have access to the original data when moving from a 0.2c to a 0.5c, or 2c to 5c, or 20c to 50c (and so on) box size.

Fortunately, with use of a computer to draw the charts for us, this is less of a problem than it was a decade ago.
Putting it all together, we can express the guidelines in the following table:

Midpoint of Price Range: 5 10 25 50 100 250 500 1000
Box size: 0.1 0.2 0.5 1 2 5 10 20

The same considerations will drive choice of box size in any market, by starting with the minimum bid and moving up in the sequence as shown above. For example, in the interest rate or currency markets, substitute basis points or decimals of a currency unit for the basic one tenth of a cent above and start with the two percent rule.

The discussion of box size has been lengthy, but, as this is the most difficult aspect of the method for beginners, it needs a solid explanation.

***

Warning: MetaStock, SuperCharts and some other charting software do not draw the basic one box reversal point and figure chart correctly. This seems to be because the US market has swung over almost entirely to small box sizes with condensed charts using the three box reversal method. They have overlooked that the one box reversal chart is drawn such that there is always a minimum of two boxes plotted in any one column. The need for this is quite strongly based in the classic books by De Villiers, Wyckoff, Gartley and Wheelan. Indeed, CompuTrac and Telerate charting software in the US use the correct method, as does Insight Trader in Australia.

 

Hi Dentist (been looking for ya). That pattern is what Thomas J. Dorsey in Point & Figure Charting: The Essential Application for Forecasting and Tracking Market Prices calls a "Long Tail Down." Dorsey makes the distinction that this pattern is for trading and not investing.



- Snaggles