Section 4 - Chapter 4 - Point-and-Figure Patterns

Chapter 4 – Point & Figure Patterns
Section 4 – Chart Pattern Analysis
Presented By :
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Agenda
Identify complex point-and-figure chart
patterns
Calculate price projections using vertical
and horizontal counts
Summarize additional uses for point-
and-figure charts

Basics of Point & Figure Patterns
Presented By :

Point & Figure (P&F) Charts
1. Overview
• A Point & Figure (P&F) chart is a price action-based charting technique that filters out insignificant
price movements (noise) and focuses on trends.
• Unlike candlestick or bar charts, P&F ignores time and only reacts to price changes.
2. Construction of P&F Charts
✅ X Columns (Rising Prices) → Represent upward price movements (bullish).
✅ O Columns (Falling Prices) → Represent downward price movements (bearish).
✅ Box Size → The minimum price change required to add a new X or O.
✅ Reversal Size → The price move required to shift from an X column to an O column (or vice versa).
Common values: 1-box, 3-box, or 5-box reversal.

3. Basic P&F Rules
• A new X is added when price moves up by at least 1 box size.
• A new O is added when price moves down by at least 1 box size.
• A reversal occurs only when price moves opposite by at least the reversal size.
• No new entries are made unless price moves significantly in either direction.
4. Trend Identification
Bullish Signal → When a column of Xs exceeds the previous high.
Bearish Signal → When a column of Os falls below the previous low.

5. Common P&F Chart Settings
• Traditional Box Size: 1% of stock price or fixed amounts (e.g., $1 per box).
• ATR-Based Box Size: Uses Average True Range (ATR) for dynamic sizing.
• Reversal Sizes:
o 1-box reversal: No filtering, very noisy.
o 3-box reversal: Most common, filters out minor price movements.
o 5-box reversal: For long-term trends, removes more noise.
6. Support & Resistance in P&F Charts
• Horizontal clusters of Xs or Os act as strong support/resistance zones.
• Breakouts above/below these zones confirm strong trends.

7. Common P&F Patterns
🔹 Double Top Breakout → A bullish signal where a new X column surpasses the previous
X high.
🔹 Double Bottom Breakdown → A bearish signal where a new O column drops below
the previous O low.
🔹 Triple Top & Bottom → Stronger versions of the above.
🔹 Bullish/Bearish Catapult → A consolidation pattern followed by a breakout.
🔹 Bullish/Bearish Triangle → Indicates potential breakout in either direction.

8. Advantages of P&F Charts
 Removes noise → Focuses only on significant price moves.
 Easy to spot trends → No time-based distractions.
 Strong support/resistance levels → Clearly defined breakouts.
 Good for long-term investors & traders → Filters out small fluctuations.
9. Limitations of P&F Charts
 Not useful for short-term trading due to lack of time element.
 May lag during rapid market movements since reversals require significant price change.
 Different settings can give different results (box size & reversal size impact signals).

10. Best Uses of P&F Charts
📌 Trend Trading: Identifying long-term bullish or bearish trends.
📌 Breakout Confirmation: Verifying strong breakouts and avoiding fake outs.
📌 Support/Resistance Analysis: Clearly defines price levels.
📌 Position Sizing & Risk Management: Helps set stop-loss levels.
Quick P&F Settings Guide
Asset Type Box Size Reversal Size
Stocks (Daily) 1% of price or $1 3-box reversal
Forex 20-50 pips 3-box reversal
Cryptos 2-5% of price 3-box reversal
Commodities ATR-based or fixed 3-box or 5-box reversal

Triangle Chart Patterns in
Point & Figure (P&F) Trading
Presented By :

Triangle Chart Patterns
Key Takeaways
• Triangle patterns indicate price compression and potential breakouts.
• They can form as ascending, descending, or symmetrical triangles.
• Breakouts provide strong directional signals but require confirmation.
• A failed breakout can lead to a reversal or trap traders.

Pattern Interpretation Trading Strategy
Ascending Triangle
Higher lows with resistance at
a fixed level; bullish breakout
likely.
Buy after breakout above
resistance with volume
confirmation.
Descending Triangle
Lower highs with support at a
fixed level; bearish breakout
likely.
Sell after breakdown below
support with confirmation.
Symmetrical Triangle
Converging highs and lows;
breakout can go in either
direction.
Trade in the breakout
direction, setting stop-loss
inside the pattern.
False Breakout
Price briefly breaks out but
reverses inside the pattern.
Avoid early entries; wait for
confirmation.

Trend line Breakout in
Presented By :

Trend line Breakout
Key Takeaways
✅ Trendline breakouts signal a shift in market direction—either a bullish or
bearish breakout.
✅ The breakout must be confirmed by price action (at least 3 Xs or Os
beyond the trendline).
✅ Trendlines in P&F charts are diagonal and provide clear support and
resistance levels.
✅ Works well for both continuation and reversal trades.

Trend line Breakout

Trend line Breakout
Pattern Interpretation Trading Strategy
Bullish Trendline Breakout
Price breaks above a long-
term downtrend line.
Buy once breakout is
confirmed with 3 Xs.
Bearish Trendline Breakdown
Price falls below an upward
trendline.
Sell after breakdown
confirmation with 3 Os.
Retest of Broken Trendline
Price pulls back to the
trendline before continuing.
Enter on the successful retest
for stronger confirmation.
False Breakout
Price breaks out but reverses
back inside.
Avoid early entries; wait for
confirmation.

Signal Reverse Patterns in
Presented By :

Signal Reverse Patterns in Point & Figure (P&F) Trading

Signal Reverse Patterns in Point & Figure (P&F) Trading
Key Takeaways
✅ Signal Reverse Patterns indicate a sudden change in market
direction.
✅ They often appear after a strong trend, signaling a possible
reversal.
✅ These patterns trap traders who expect continuation but get
caught on the wrong side.
✅ Confirmation with at least 3 Xs (bullish reversal) or 3 Os (bearish
reversal) is crucial.

Point & Figure Price Projection
Presented By :

Vertical Count Price Projection Point & Figure Charts
📌 Key Facts on Vertical Count Price Projection
1. What is the Vertical Count Method?
• A trend-based price projection technique in P&F charting.
• Used to estimate potential price targets based on the size of the initial move in a new trend.
• Helps determine how far a trend may extend after a breakout.
2. Key Components
• Column of Xs or Os: The first strong move in a trend.
• Box Size: The price movement required to form each X or O.
• Reversal Factor: The setting for how many boxes constitute a column reversal (typically 3).
• Breakout Level: The price at which the pattern confirms a breakout.

📌 Key Facts on Vertical Count Price Projection
3. Vertical Count Projection Formula
• Bullish Target: Add projection to breakout level.
• Bearish Target: Subtract projection from breakout level.

4. Steps to Calculate Vertical Count Projection
✅ For a Bullish Target:
1. Identify the first column of Xs that starts a new uptrend.
2. Count the number of Xs in this column.
3. Multiply by Box Size and Reversal Factor.
4. Add the result to the breakout price (where the price exceeded prior resistance).
✅ For a Bearish Target:
1. Identify the first column of Os in a new downtrend.
2. Count the number of Os in this column.
3. Multiply by Box Size and Reversal Factor.
4. Subtract the result from the breakdown price (where price fell below prior support).

🔹 Formula Breakdown
Component Description
Box Count Total number of Xs or Os in the initial column of the trend
Box Size The price change represented by one X or O
Reversal Factor The number of boxes required to reverse a trend (usually 3)
Breakout Level The price level confirming the trend direction
🔹 Example Calculation (Bullish Trend)
 Box Size: $2
 Reversal Factor: 3
 Column Count: 10 Xs
 Breakout Level: $50
Price Target Calculation:
50+(10×2×3)=50+60=$110

🔹 Example Calculation (Bullish
Trend)
Box Size: $2
Reversal Factor: 3
Column Count: 10 Xs
Breakout Level: $50
50+(10×2×3)=50+60=$110
🔹 Example Calculation
(Bearish Trend)
Box Size: $1
Reversal Factor: 3
Column Count: 8 Os
Breakdown Level: $40
40−(8×1×3)=40−24=$16

⚡ Key Takeaways & Pro Tips
✔ The longer the initial column, the bigger the price projection.
✔ Works best in strong trends with clear breakouts.
✔ Confirm projections with support, resistance, and volume analysis.
✔ Use larger box sizes for long-term projections and smaller for short-term.
✔ Always check multiple timeframes for confluence.

Horizontal Count Price Projection
Presented By :

Horizontal Count Price Projection Point & Figure Charts
1. What is the Horizontal Count Method?
• A range-based price projection technique in P&F charting.
• Used to estimate potential price targets based on the width of a consolidation or base
before a breakout.
• Helps determine how far price might move after breaking out of a trading range.
2. Key Components
• Base Formation: The sideways consolidation before a breakout.
• Column Count: The total number of columns in the base.
• Box Size: The price movement required to form each X or O.
• Breakout Level: The price level at which the breakout is confirmed.

3. Horizontal Count Projection Formula
• Bullish Target: Add projection to the breakout level.
• Bearish Target: Subtract projection from the breakdown level.
4. Steps to Calculate Horizontal Count Projection
✅ For a Bullish Target:
1. Identify a sideways consolidation (trading range) before the breakout.
2. Count the number of columns in the base (from leftmost to rightmost).
3. Multiply by Box Size.
4. Add the result to the breakout price (the price that confirms an upward breakout).

4. Steps to Calculate Horizontal Count Projection
✅ For a Bearish Target:
1.Identify a sideways base before a downward breakout.
2.Count the number of columns in the base.
3.Multiply by Box Size.
4.Subtract the result from the breakdown price (the price that confirms a
downward breakout).

🔹 Formula Breakdown
Component Description
Column Count Number of columns in the consolidation base
Box Size The price change represented by one X or O
Breakout Level The price level confirming the breakout
Projection Method Add for bullish, subtract for bearish
⚡ Key Takeaways & Pro Tips
✔ Best used for breakouts from a trading range or accumulation/distribution zone.
✔ Larger bases result in larger price projections.
✔ Horizontal count targets work best when confirmed by trendlines and volume analysis.
✔ Check multiple timeframes to validate projections.
✔ Use stop-loss levels near the breakout point to manage risk.

Chapter 1 – Moving Averages
Next Section 5 – Technical Indicators
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Section 4 - Chapter 4 - Point-and-Figure Patterns

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