Constructing Point & Figure Charts
- Record all one-point price movements (Ex. 40,41,42,43,44 etc…). The one-point scale is used for stocks between $20—$100. For stocks under $20, record each half-point movement and for those over $100 record each two-point movement.
- Record these changes through the use of two letters of the alphabet representing the price movements noted above. X’s are used when the price is rising and O’s are used for when the price is falling.
- Make no recording unless the one-point price movement occurs.
- Use horizontal columns for specific price levels and vertical columns for price movements continuing in the same direction. These columns create boxes on the chart. Think of it like graph paper.
- Daily highs and lows, not closing prices, are used to determine the price movements. If a stock’s price movement is up (in a column of Xs) then look at the high first to see if it reached the next higher box level. Record Xs in each box level reached on the way up. If the price movement is declining (in a column of Os) then look at the low to see if it hit the next lower box level. Record Os in each box level reached on the way down.
- If the price movement did not continue in the same direction, look to see if it reverses columns. Three boxes are needed to reverse from one column to the next. There fore, a stock trading between $20 and $100 needs a price reversal of $3 to record a reversal (change of columns) on its chart. (Ex. Last entry is an X at $44, it takes a price movement down to $41 to begin recording a column of Os.)
- Price movements continue in the same column until there is a full three box reversal of price. Anything less than three boxes is considered a minor and irrelevant price fluctuation.
- When a reversal of the price movement develops, move over one column to the right and record the subsequent changes of prices. Each column represents either an advance or a decline in stock price. It cannot represent both.
- You cannot record Xs and Os in the same day. Either the chart is able to continue in the current column or there is a reversal. First, you look to see if it can continue in the same column. If so, that is the only recording that is made. The chart cannot continue in the same column and reverse the same day.
- A move to the next right hand vertical column must be in a diagonal direction, either one square higher if the reversal in price is up, or one square lower if the reversal in price is down.
- Record the passage of time by substituting a number for the first entry made on a chart each month. Use 1-9 to represent January through September, and A, B, and C to represent October, November, and December.
- Xs represent demand, Os represent supply.
