A point‑and‑figure chart is a price‑only charting technique that plots columns of X’s (rising prices) and O’s (falling prices) to record movements that exceed a predefined price increment (the “box size”). Unlike time‑based charts such as candlesticks or bars, P&F charts ignore time and small, insignificant price fluctuations. That filtering purpose is what makes P&F useful to many technical analysts: it emphasizes meaningful supply/demand shifts and cleaner support, resistance and breakout signals. (Sources: Investopedia; Nasdaq.)
Key Takeaways
– P&F charts plot price movements only (no time axis), using X columns for up moves and O columns for down moves.
– Two main settings control the chart: box size (price increment per X or O) and reversal amount (how far price must move opposite to start a new column).
– Common defaults: reversal = 3 boxes; box size can be fixed ($ or %) or volatility‑adaptive (e.g., based on ATR).
– P&F filters noise and can make support/resistance and breakouts clearer, but signals are lagged and false breakouts still occur.
(Sources: Investopedia; Nasdaq.)
How P&F Charts Are Constructed (Rules & Calculation)
1. Choose the inputs
• Box size (B): a fixed dollar amount (e.g., $1), percentage (e.g., 3% of price), or volatility‑based (e.g., ATR). This determines when a new X or O is added.
• Reversal amount (R): usually expressed in boxes (commonly 3). A reversal of R boxes means the price must move R × B in the opposite direction to start a new column.
• Price datum: use highs/lows (more entries) or closes only (fewer entries).
2. Establish the initial column and direction
• Wait until price moves at least one box (B) in either direction from the starting point. If price rises one box, start an X column; if it falls one box, start an O column.
3. Add X’s or O’s within a column
• Continue adding X’s while price rises by each additional B increment.
• Continue adding O’s while price falls by each additional B increment.
4. Determine reversals and start a new column
• For an X column: if price falls by at least R × B from the column’s highest price, start a new O column. Draw the number of O’s corresponding to how many full boxes the price has moved down.
• For an O column: if price rises by at least R × B from the column’s lowest price, start a new X column and draw the needed X’s.
• When a reversal occurs, the new column is drawn to the right of the previous column.
Practical plotting example (conceptual)
– Box size B = $1, reversal R = 3.
– Price rises from $15 to $18: you would have X’s at 16, 17, 18 (three X’s after the initial X).
– If price then falls to $15 (a $3 decline = 3 boxes), you start a new column of three O’s to represent the reversal.
(Algorithmic rules as described above determine the exact box counts when using highs/lows vs closes.)
What a P&F Chart Tells You (Signals & Interpretation)
– Trend identification: long columns of X’s indicate sustained demand/uptrend; long columns of O’s indicate sustained supply/downtrend.
– Support and resistance: because insignificant moves are filtered out, horizontal levels where columns stop or reverse often correspond to clearer support and resistance zones.
– Breakouts: a bullish breakout is signaled when the current X column moves above a prior column’s top by at least one box; bearish breakouts occur when an O column moves below a prior column’s bottom.
– Reversal significance: a column change (X → O or O → X) only occurs after a meaningful move (R × B), which reduces noise but also produces later signals.
(Sources: Investopedia.)
Point‑and‑Figure Analysts and History
– Charles Dow is credited with the early development of point‑and‑figure ideas to detect supply/demand imbalances.
– Tom Dorsey popularized modern P&F work and integrating P&F with other technical indicators (moving averages, relative strength, etc.). He founded Dorsey, Wright & Associates and authored books on P&F charting. (Sources: Investopedia; Nasdaq.)
How P&F Differs from Renko Charts
– Both use fixed price increments (boxes), but:
• P&F: side‑by‑side columns of X’s and O’s; multi‑box reversals (commonly 3 boxes).
• Renko: draws bricks offset at 45° angles; a single opposite brick appears only after a 2‑box equivalent move (in practice, Renko’s reversal logic differs).
– Visual layout: P&F looks like columns of X/O in vertical stacks; Renko looks like offset bricks across both axes.
(Sources: Investopedia.)
Limitations and Risks
– Lag: Because reversals require movement of several boxes, P&F can produce late entries; the price has often moved considerably before the chart signals.
– Large reversals can cause big drawdowns: waiting for the reversal threshold may allow more adverse movement against a position before the chart flips.
– False breakouts still occur: filtering reduces but does not eliminate false signals.
– Parameter sensitivity: different box sizes and reversal settings change signal frequency and meaning—there’s no single “best” setting for all markets or timeframes.
– Recommendation: monitor real‑time prices (candlesticks/OHLC) alongside P&F to manage risk and position sizing.
(Sources: Investopedia.)
Practical Steps — How to Use Point‑and‑Figure Charts in Your Trading
1. Decide objective and timeframe
• Are you a swing trader, position trader, or investor? Choose box size and charting cadence to match (larger boxes/longer lookbacks for longer horizons).
2. Choose box size method
• Fixed dollar—useful for single securities with stable price ranges.
• Percentage—keeps box size proportional to price level (good for equities across price ranges).
• Volatility‑based (ATR)—adapts box size to changing volatility (helps avoid excessive boxes during high volatility).
3. Choose reversal amount
• R = 3 boxes is standard (reduces noise). Use smaller R (1–2) for more sensitivity, larger R (4–5+) for more filtering.
4. Select price input
• Use high/low to get more responsiveness; use close‑only to be more conservative.
5. Generate the chart
• Use your charting platform’s P&F tool and enter box and reversal settings, or implement the rules programmatically following the algorithm rules above.
6. Read chart patterns and signals
• Breakout rules: buy when an X column exceeds a previous X column’s top; sell when an O column falls below a previous O column’s bottom.
• Use support/resistance from horizontal clusters of X/O reversals.
• Watch column changes as meaningful structural shifts; combine with volume, momentum, or breadth indicators to confirm.
7. Entry, targets and risk management
• Entry: use a P&F breakout or pullback to a defined support level confirmed by P&F.
• Stops: place stops based on price notches adjacent to recent P&F support/resistance, or use a separate time‑based/price chart to manage tighter stops.
• Position sizing: because P&F signals can be late, size positions to allow for the potential adverse movement before a reversal is confirmed.
• Confirmation: combine P&F signals with a candlestick or OHLC chart for intraday risk control and with momentum (e.g., RSI) for validation.
8. Monitor and adapt
• Reassess box size/reversal periodically (markets evolve).
• Backtest your settings and rules on historical data for the specific markets you trade.
Practical examples of use
– Trend following: stay long while the chart forms successive X columns and only reduce/exit when a multi‑box reversal produces an O column.
– Breakout entry: buy on a bullish double‑top breakout on P&F (current X column exceeds a prior column’s top by at least one box).
– Confirmation: require breakout on P&F and rising volume or positive momentum indicator on a time‑based chart.
Best Practices and Tips
– Start with R = 3; experiment with box size to find a balance between signal frequency and noise.
– For volatile instruments (commodities, crypto), use volatility‑adaptive box sizes (ATR) to avoid excessive X/O generation.
– Always consider price behavior on a conventional time‑based chart for stop placement and intraday risk management.
– Use P&F in combination with other tools (trend indicators, moving averages, volume, breadth) — P&F is strongest as a noise‑filtering price framework, not a complete system.
Sources and Further Reading
– Investopedia. “Point and Figure Chart.”
– Nasdaq. “Point & Figure Basics.” (accessed Nov. 22, 2020)
– Nasdaq. “Tom Dorsey.” (accessed Nov. 22, 2020)
Editor’s note: The following topics are reserved for upcoming updates and will be expanded with detailed examples and datasets.