Point and Figure Forex Charting
There are three popular and frequently used chart types: line, bar and candle. But there is still a type of graph that is rarely used by traders. There’s nothing wrong with us knowing it. That is Point and Figure (point and picture).
Point and Figure diagrams or charts (P & F) that appear in the year of at least 1880 and differ from pair charts or other stocks because they do not plot price movements from left to right within fixed time intervals. It also does not plot traded volumes. Instead, it sorts the price movement in a vertical column and moves to the next column when the price changes direction. Increase in price by writing X in the column and the price drop by writing O.
Each X and O represents a set of predetermined size or amount of price. The size of this box determines how far the price moves before another X or O is added to the graph, depending on the direction of the price movement. So if the box size is set at 15, the price should move 15 points above the previous box. Even before the next X or O is plotted. Any movement below 15 is ignored. For this reason, very few plots occur in stagnant market conditions while large numbers of plots can occur during volatile market conditions.
This graph also has a number of box reversals that determine how many boxes should occur in opposite directions before being seen as a reversal. Only when the price is seen will turn into the beginning of a new column. In 3 reversal boxes requires a price to move three boxes (of 45 points if each box represents 15 points) against the current direction before being seen as a reversal.
Some traders argue that the P & F chart is one of the best charting techniques to accurately determine incoming and outgoing signals as they show a clear indication of support and resistance lines, as well as clear trend lines. The P & F chart also tracks its own set of graph patterns, such as fulcrum, small plate, and base V.