Point-and-Figure Charting Can Be Used to Your Advantage in Forex Trading
Guest contribution provided by Forex Traders
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 Currency traders are always on the look out for a new “tool” that has yet to gain popularity amongst the broad trader community, but has also gained some acceptance among the group due to its apparent success at pinpointing trends, support and resistance levels, and the potential for immediate reversals of pricing behavior. The search is never ending, as if a “Holy Grail” really does exist. Quite often the focus can shift to an “old” tool that has worked before, but has somehow faded from general use.
Point-and-Figure charting is one example of an old weapon of stock traders that has gained some support and success among the forex crowd. The origins of this plotting process can be traced back to the end of the nineteenth century when it was known as the “book method”. General interest in this charting method has grown through the years. Technology in the form of new trading platform software elevated the technique to its latest electronic form and helped Point-and-Figure charting regain new prominence amongst traders in all forms of varying investment vehicles.
The uniqueness of this charting method is that it is the only type that focuses only on price activity. Time, as a factor, is irrelevant since time periods do not impact the plotting process. A user may look at a variety of different timeframes to gather his pricing data and may note it on the chart, but the influence of time does not affect the placement of “X’s” and “O’s” in the standard chart. The objective of the chart is to plot price activity and to ignore those occasions when there is a lack of activity. Price behavior that is not significant is then filtered out, leaving the trader a clear pattern for determining signals.
An example of a Point-and-Figure chart |
Price increases are reflected by the “stacks” of “X’s”, and decreases, by the stacks of “O’s”.
Each “box” in the chart would consist of 10 pips. An “X” is entered at the beginning and then another “X” is entered for each gain of 10 pips in the original direction. When the market reverses, no entry is plotted until the price has decreased by 30 pips, at which time all three “O’s” would be entered and the process continued in the opposite direction.
Support and resistance levels, both horizontal and diagonal, will appear as noted in the diagram. Trading signals are generated when these lines are crossed. A “1-box” chart can also be created, but it may not filter out the confusing “noise” of inherent price volatility.
Try Point-and-Figure charting. You might like it!
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