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What are point and figure charts

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What are point and figure charts

Point and figure charts are another type of chart that relies solely on price movements rather than time intervals. In this sense, P&F charts are similar to Renko, Kagi, and line break charts.

At a basic level, P&F charts are composed of a series of columns made up of either X's or O's. X columns represent rising prices, while columns of O's indicate falling prices.

Point and figure charts were originally popular in the early 1900s, before the widespread use of computer-based charting. They offered a way for technical analysts to chart large amounts of data efficiently. With the rise of computers, these charts declined in popularity for a time. However, they are now regaining attention as interest in "noise-filtering" charts — those that focus solely on price movements — grows.

The X's and O's that make up each column occupy a space called the box size, which is a user-defined value. When the price moves enough in the same direction as the current column, a new X or O is added. When the price moves far enough in the opposite direction, a new column begins with either an X or an O (the opposite of the previous column).

The required amount of price movement is determined by the reversal distance, calculated by multiplying the box size by another user-defined value: the reversal amount. The reversal amount specifies how many boxes the price must move for a new letter or column to be created.

For example, if the box size is set to $1 and the reversal amount is set to 3, the price must move $3 in the opposite direction to trigger a new column.

There are two key rules regarding letters and columns:

  • Each column must contain only X's or O's. You can never have both in the same column
  • X and O columns always alternate. You will never see two X columns or two O columns side by side

Box types

There are four types of lines that can appear on a P&F chart:

  • Up bars: Form during an uptrend
  • Down bars: Form during a downtrend
  • Projected up bars: Represent potential up moves during intraday timeframes, based on current prices before the close
  • Projected down bars: Represent potential down moves during intraday timeframes, based on current prices before the close

Box calculation methods

There are three main methods used to calculate the reversal distance:

  • Average True Range (ATR): Uses the ATR indicator to filter out normal market noise or volatility. This method automatically determines a suitable reversal distance by calculating the ATR from a standard candlestick chart and using that value
  • Traditional: Uses a fixed, user-defined box size and reversal amount. New boxes form only when the price move exceeds the specified reversal amount. This method is simple and predictable, but selecting the right box size for a particular instrument may require trial and error
  • Percentage (LTP): The box size is based on a user-defined percentage of the most recent closing price. This percentage is rounded to the nearest minimum tick size and applied consistently. However, this method is subject to repainting, meaning it can change retroactively as new data comes in. Further information is available on this behavior

How to use point and figure charts

As with other noise-filtering charts, point and figure charts are popular because they exclude time and small, insignificant price movements. Some traders believe this makes it easier to identify trends and forecast future price action.

Trend lines: Originally hand-drawn on graph paper, p&f charts naturally form diagonal (often 45-degree) trend lines. These lines help users recognize overall market direction and can be used alongside other tools or indicators.

Support and resistance levels: These charts often show clear trading ranges as bars form between horizontal support and resistance zones.

Breakouts: Breakouts occur when new boxes appear in one direction after a period of range-bound price action. This indicates a potential new trend.

Chart settings

  • Up bars: Customize the color and outline of up bars
  • Down bars: Customize the color and outline of down bars
  • Projected up bars: Customize the appearance of projected up bars
  • Projected down bars: Customize the appearance of projected down bars
  • Source: Select which data point (e.g., close) will be used for chart calculations. Close is the default
  • Box size assignment method: Choose between ATR, Traditional, or Percentage (LTP) methods
  • ATR length: If using ATR, this sets the look-back period (default is 14)
  • Box size: For the Traditional method, this is the user-defined box size
  • Reversal amount: For the Traditional method, this sets how many boxes the price must reverse before a new column is created
  • Percentage: For the Percentage (LTP) method, this sets the percent of the last trading price to determine box size (default is 1%)

Also read:

Learn to use Kagi charts
Understanding range charts