Charting  |  APR 2006

Point & Figure & Forex by Cornelius Luca

Stocks & Commodities V. 24:4 (72-74): Point & Figure & Forex by Cornelius Luca Why are point & figure charts well suited for the 24-hour trading arena in foreign exchange? Typically, the majority of currency traders keep their eyes glued on bar and candlestick activity, but point & figure (P&F) charts can help them secure a profit. Line, bar, and candlestick charts need both prices and time periods for plotting. That’s not the case for the P&F charts, because you need only prices. For the purposes of this chart, time is irrelevant. P&F charts’ forte comes from the fact that they hide minor price fluctuations in order to filter out statistical noise and produce cleaner breakout points. The P&F charts are based on tick charts, so they are particularly well suited for the 24-hour trading in forex because there are no pauses between trading sessions. ORIGINS The P&F chart was originally referred to as the “book method” when it was developed at the end of the 19th century. Traders entered prices in their original numerical format rather than plotting a line or a bar. A hundred years ago, an analyst would have entered the full prices, but by the start of the 20th century, the numbers had been replaced with symbols: Xs for upward moves and Os for downward moves. PRICE STRUCTURE Two currency prices are divided in equal portions, which you will include in the boxes, rising or declining. Start with 10 pips in euro/dollar or sterling/dollar and probably five pips for euro/sterling, but optimize the size of these boxes based on currency and volatility. If you expect high volatility, then increase the size of the box, but if you are a daytrader who needs more sensitivity, then you can decrease the size of the box.

by Cornelius Luca