21st Century Point and Figure: New and Advanced Techniques for Using Point and Figure Charts
By Jeremy du Plessis
Harriman House LTD
Plessis previously authored The Definitive Guide to Point and Figure Charts which is a 514-page comprehensive review of the subject matter. This book adds a handful of technical indicators to the charts which use vertical columns of x’s and o’s to plot changes in price while ignoring time. Although the author provides a five page summary of the key concepts of point-and-figure (P&F) charting, readers who are new to the subject should consider reading his prior book first to gain the detailed knowledge necessary to understand how best to use the charts.
Plessis, a CMT and member of the Market Technicians Association, provides a clearly written, logically formatted book on adding specific technical indicators to P&F charts that provide additional insight into the status – bullish, neutral or bearish -- of the security being monitored. Specifically, he covers moving averages, overbought/oversold oscillators, MACD and its histogram, RSI, relative strength, Directional Movement, Donchian channels, Bollinger Bands, and Parbolic SAR, all of which are available on most charting and brokerage trading software platforms. P&F charts are drawn first and then the indicators are calculated and placed on them.
The author spends considerable time explaining the key elements of the P&F chart including the arithmetic vs. log scale, and box size and average true range. For example, in his discussion of using moving averages, he indicates that one must use the average of each column of x’s or o’s rather than a specific time period such as 10 or 20 periods. Otherwise, the moving averages would not be properly represented. Moving averages require a true log scale where each box size is a percentage move. The moving average is the midpoint of each column. When using Bollinger Bands, the author recommends the use of a 10-period center line rather than the standard 20-setting.
One interesting addition to P&F charting is the plotting of volume. Volume is measured for each column. Another way he shows volume on the chart is to plot it at each price level horizontally. On-balance volume can be shown this way on the P&F chart. Plessis introduces a new indicator that he developed called the P&F Trend Oscillator. It plots the difference between price and its 45 degree trend line to determine whether the chart is in an overbought or oversold condition.
One chapter is devoted to drawing relative strength charts as P&F charts and spreads (difference between two equities, indexes or commodities). Relative strength is typically measured as a ratio of the stock price to its closest index. A rising chart shows that the stock is outperforming its index and vice versa.
In summary, Plessis has again added considerable value to the use of P&F charts with his latest book. As in his previous ground-breaking book, all charts are printed in color and easy to read. Any investor or trader interested in the markets should consider adding these charts to his/her arsenal of market weapons. Readers looking for additional resources on P&F charts should check out Thomas Dorsey’s two books on the subject, and go to StockCharts.com, which offers high-quality P&F charts with adjustments for box size and scale, as well as other critical factors mentioned in this book.