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Technical Analysis: Point & Figure Charts
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A point and figure
chart is used for technical analysis of securities. Unlike
most other investment charts, point and figure charts do not
present a linear representation of time. Instead, they show
trends in price.
The aim of point and figure charting is to filter out the
"noise" (unimportant price movement) and focus on the main
direction of the price trend.
Point and figure charts are usually used for longer term price
movements. Having said that they can be used to day trade by
clearly identifying the key points of supply and demand. They
are very effective at keeping you on the right side of the
market. Point and figure charts can do a really good job to
spot very good trading opportunities on a trade and trend
market. Point and figure charts are close relatives to three
line break, renko and kagi charts which all do not have a
fixed timeframe. This makes you trade only the important moves
of the market, minor moves are discarded because of the
limited gain potential. If you want more information about
Japanese reversal charts have a look at the website of market
tide Website Market Tide
There are two typical ways to plot point and figure charts -
using closing prices, or with high/low prices. The most common
method nowadays is high/low prices of a specific timeframe
normally daily prices. The close (EOD) method was used until
1947 when A.W. Cohen invented a different system to work with
point and figure charts using high/low prices. A.W. Cohen also
invented in 1955, while working for Chartcraft, the bullish
percent indicator BP a tool to gauge the market breadth of a
specific market or index. Today, Chartcraft is Investors
Intelligence Website Investorsintelligence.
He used for the calculation of the BP high/low prices of the
day due to the fact he invented the high/low system on point
and figure charts. But it is also possible to calculate the BP
with close only prices but the outcome are two different BP
charts. Closing prices are useful when charting price movement
for funds or suchlike where there is no real way to get the
intraday prices for that fund. But we can use the close only
prices also for every kind of market because sometimes the
intraday movement of prices can be confusing.
If you take into account that point and figure charting in the
last part of the 19th century and the first part of the 20th
century was used to record price movement of tick charts the
close only price would be one tick to be specific our last
tick for the trading day. |
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Technical Analysis
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