Big Experiment. Tic-Tac-Toe (Point and Figure) chart (part 4)BITFINEX:BTCUSD
Dear friends,
I go on my big experiment. In the previous training post, I wrote about Kagi chart. I described its properties and major signals. Next, I started testing it, applying to my daily crypto analyses.
Results of work with Kagi
Last week, I was actively testing Kagi, using it in my cryptocurrency price predictions.
(ETHUSD forecast, dated 07.09.2018)
(ETHUSD actual situation on 09.09.2018)
(XMRUSD forecast, dated 05.09.2018)
(XMRUSD actual situation on 09.09.2018)
As you see from the charts above, Kagi is an efficient tool that can supplement any trend strategy.
During my tests, I found out:
Advantages:
• It filters out minor sideways movements and random noises.
• It sends trend reversal signals.
• It easily identifies support and resistance levels
• MACD and other moving averages send strong, accurate signals.
Disadvantages:
• Signals are late
• You can’t apply indicators, analyzing trading volume.
• A random signals may be sent.
The next unusual chart in my experiment is Tic-Tac-Toe chart. It is also called Point and Figure chart (P&F).
Description of the chart of Point and Figure
The next unusual chart in my experiment is Tic-Tac-Toe chart. It is also called Point and Figure chart (P&F).
It is a price chart that is not directly linked to the Japanese culture. It was first mentioned in 1881. I’ve managed to learn that the P&F approach originally comes from the USA and was first introduced by Joseph Klein and Charles Dow. Due to its geographical origin, the Tic-Tac-Toe chart is still a popular technical analysis tool in the USA.
On a point and figure chart, there is no time axis, only a price axis. The chart is constructed, based on the principle, similar to Renko. You also set the size of the price unit (block) that looks like X in the bullish market and like O, in the bearish market.
So, if the price moves up or down during a certain period of time, the chart paints Xs or Os; their number is the multiple of the unit size; besides, the remainder is always removed, so, the chart paints only whole number of units, without the remainder.
If there haven’t been any price movements during the corresponding period of time, the chart won’t paint any Xs or Os.
Therefore, one column of Xs (point) or Os (figure) can be constructed for an indefinitely long period of time, depending on the market situation and the unit size.
Another feature of the Tic-Tac-Toe chart is the reversal parameter; it shows how many units in total the price should move in the opposite direction, so that the chart paints a new column.
Most often, the default value is three units. For example, if the unit size is 100 USD, in the upward momentum, the ticker should go down by at least 300 USD, for the chart to paint a new column of three Os. The same is with the bearish trend.
Charles Dow called it a book chart, as traders used to keep track of prices, by writing them down in columns in the books or notebooks. The indicator’s features make it quite concise; so, you can draw a few-year history of price movements on a single sheet of paper, provided the unit size is big enough.
Modern technologies spare traders of the need to do it manually. To explain the Tic-Tac-Toe indicator, I use the chart on the tradingview platform as an example.
To make it easier for you to understand, I suggest describing a real example, in comparison with the usual candlestick chart.
I analyzed BTCUSD four-hour timeframe.
To compare it with Renko and other charts, I use the same unit size for each chart, 125 USD. I left the default reversal parameter of 3 units.
I’d like to note some special features of the Tic-Tac-Toe construction on tradingview.
Irrespective of the instrument you choose, the starting point for the units’ construction is zero.
• The units are counted, starting from zero (0).
• The units are drawn, according to the closing prices, without considering the extremes.
• The unit borders (Xs and Os) do not depend on the prices and are used only for display, the column length is calculated, starting from the centre of a X or an O, rather than from its borders.
Well, let’s analyze the chart above.
In the right part of the chart above, there is a rising column of Xs under the green arrow. It is marked with the green circle in the candlestick chart.
It is clear that the reversal started on August 25. As the Reversal value is three units, and the unit size is 125 USD, the column of red Os is painted when the Bitcoin price is down by 375 USD.
The last whole unit of the green column closed at 9625 USD (marked with the gray arrow).
The first three Os appear in the chart after the price went down and broke through level 9250 USD (9625 – 375). Besides, the first O is always 1 unit lower than the last X of the previous column.
In addition, the length is counted starting from not the visual borders of O, but from its centre; in the chart, you see all six Os, where the column length is calculated, starting from the beginning of the second unit.
The last whole unit of the first column closed at 8875 USD. Besides, the remainders of a few bars that hadn’t fitted in the last unit or formed the new one weren’t included in the Tic-Tac-Toe chart (I marked the section with the blue circle).
It is clear from the chart above that wave 2 started developing. It is marked with the blue arrow 2.
Because of one long candlestick, covering 375 USD, the condition of three blocks was met and a new column of three Xs appeared; the count starts again from the second (green) unit at level 9000 USD.
Right after the sharp surge, the BTCUSD ticker was corrected down, but the limit of 375 USD wasn’t reached. The Tic-Tac-Toe chart didn’t display the drawdown, that is, it took it as a random move.
Next, the Bitcoin price started rising again, being 125 USD up, breaking through level 9250; therefore, another X appeared in the column.
Next, the situation repeats in the opposite direction.
The last whole unit was painted at 9375 USD. The price didn’t move up by 125 USD, according to the closing level.
Next, the price correction started. You see, the condition of three units was met only on May 1, and so, that is when the Tic-Tac-Toe chart painted a new column of three red Os.
I think, the main advantage of the Tic-Tac-Toe chart is that you can apply graphic analysis to this type of charts.
Moreover, the common patterns of graphic analysis work according to the same rules as usual.
In the chart above, there a whole set of different patterns:
1 – The uptrend is broken.
2 –The bearish flag pattern works out.
3 –The rising triangle is broken out from below.
4 – The double top pattern works out.
These charts also often have head and shoulders and equilateral triangle patterns.
As the rules of trading according to the patterns are same as those for Japanese candlestick charts, I won’t explain the patterns’ meaning.
I’ll only note that, in your own analysis, you can find almost any pattern of graphic analysis, both bullish and bearish, even those, I haven’t enumerated. So, if you don’t feel confident in technical analysis or don’t understand what I’ve been writing about, I suggest you studied graphic analysis as your home task.
So, that is all about the Tic-Tac-Toe chart for today.
As a part of my experiment, I’m now going to use the Tic-Tac-Toe chart in practice. I will share my experience in the next training article. I’ll also describe how you can use the chart’s special features to identify the trend length and how to apply the common tools of technical analysis to the chart.
I wish you good luck and good profits!
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