Trading Techniques | JUL 1995
Logarithmic Point & Figure Charting by William G.S. Brown
V.13:07 (288-291): Logarithmic Point & Figure Charting by William G.S. Brown Traditional point & figure charting is one of the oldest methods known in technical analysis. The technique is unique because it only records the direction and change in price while ignoring the passage of time. But it has certain disadvantages; for example, it is virtually impossible to adjust a point & figure plot for stock splits or dividends without replotting the whole chart. Making each box represent a fixed percentage change - a logarithmic scale - has several advantages. Here's what they are. Point & figure charting, one of the oldest methods used in technical analysis, was first used in the late 1800s. Unlike most other chart-based methods of analysis, time per se does not appear on point & figure charting. In most cases, the price movements shown on the charts cover a longer elapsed time than a time-based chart of the same size. Maintaining a point & figure chart requires writing a series of Xs or Os in a column. No other action is required. This is simpler than drawing graphical, time-based charts based on, say, high, low and closing values - especially when the charts are maintained by hand. The simple construction means that even the less-dedicated investor may be willing to devote the time necessary to maintain the charts. The long historical overview that is the result provides the investment perspective needed for investment decisions. Finally, common point & figure chart formations have been identified along with their interpretation and use as trading indicators. The effectiveness of these formations as buy and sell signals have been analyzed with some surprisingly consistent results.
by William G.S. Brown, Ph.D.
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