|In last week's article, I mentioned that one of the problems found with classical point and figure charting is that a trader would trade the share late -- that is, after the price has started moving. This was beneficial because the trader has the advantage of always trading in the direction of the trend. |
Although I am a traditionalist, I must admit that computers today have given us an advantage. We are able to chart many variations in point and figure parameters, and look for more profitable trading strategies.
|The point and figure chart of Nortel, as shown in Figure 1, is not the same as the one printed last week. Instead of a chart of the close, with a parameter of 0.1 and a three-point reversal, I have drawn a P&F chart using the range of the range of the high and the low. The parameter is computer-calculated at 0.1452 with a three-point reversal. I have also drawn a five-period exponential moving average (green) and a 15-period moving average (red) on the chart. The intention is to forewarn us of a future P&F breakout, either up and down.|
|Figure 1: Nortel and P&F plus moving averages. The point and figure chart of Nortel, as shown here, is not the same as the one printed last week.|
|Graphic provided by: MetaStock.|
|In analyzing the chart:|
1, 2, and 3. Note how the crossover of the two moving averages have given a buy signal long before the P&F chart gave a buy signal. I have highlighted a P&F buy signal with a "bull," and a P&F sell signal with a "bear."
4. Here, the moving average gave a sell signal after the P&F chart gave a buy signal. The price did move down, but the moving average crossover gave a buy long before the P&F gave a buy signal.
5. The moving average gave a buy signal well ahead of the P&F buy, as shown by the bull.
6. The moving average would have taken you out well before the P&F sell signal, as shown by the bear on the chart. The P&F buy signal was not confirmed by the moving averages, so we would have remained short.
8. This was a buy, and
9. This was a sell.
10. and 11. Consolidation occurred, with the moving average at first suggesting a buy at "10," which changed to a sell signal at "11," as the price fell away in a P&F sell signal, as shown by the bear.
|At the moment, the P&F is suggesting a consolidation phase that may culminate in a triple-top buy signal. The moving averages, however, are suggesting a sell signal. Any move of the short-term moving average (green) above the long-term moving average (red) would confirm that a triple-top breakout upward is imminent. Should this occur, using the horizontal target count as explained in my article last week, Nortel should rise to $7.16. (7 columns x 3 point reversal = 21 x 0.1452 (parameter) = 3.05 + 4.11 = 7.16)|
|Here is another arrow in your decision-making quiver.|
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|Phone # for sales:||6042634214|
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