Compositedge E-learning- Point & Figure charts

A key aggregation chart for your day today trading activities…

 

In statistics, data aggregation is a process where raw information is taken and converted into statistical form for further analysis. Aggregate data thus derived is used to provide stats such as average, sum, maximum & minimum values.
Unlike conventional charts such as candlesticks and bars where the open, high, low and closing prices are plotted, aggregation charts like the P&F plot only one of the above prices, thereby removing insignificant price movements or noise arising from frequent market volatility.
Secondly, the difference between the two is the time factor. While conventional chartists’ factor in time based on their trading style, P&F charts completely rely on price activity. Therefore, prices are scaled on the vertical or “Y axis” with the horizontal “X axis” representing time scale in conventional charts ignored completely.
Thirdly, volumes which are predominantly used as secondary indicators in conventional charting are omitted by traders monitoring P&F charts.
Lastly, since P&F charts are used to identify broad price trends, they are better suited for swing or positional trades and are rarely employed by day traders.

P&F charts have been in existence for more than 100 years and have found wide acceptance by analysts looking for alternative charting methods to predict market movements. In this article, we will take a look at some of the key features of P&F charts which can be found in our trading platform, Protrader and the basic techniques followed by traders to analyse them

P&F charts comprise of four key components

  • Columns- Represented by “X or O” which relate to rising/ falling prices correspondingly.
  • Box size- Determined by a predefined price interval.
  • Reversal size- Creates a new column based on pre-defined parameters
  • Price field- Can be defined either as Open, High, Low, High/Low, Close


Source: Compositedge- Protrader terminal

Working of P&F charts-
In P&F charts, rising prices are registered as X-columns and falling prices by O-columns. Every X or O in a column is called a “box” which is generally pre-set by the user. If the box size is set to ₹5 and prices continue to rise or fall by the predefined box size, a new “X or O” will be plotted in the same column. P&F charts do not consider price gaps while plotting columns, so, if prices jump from say ₹100 to ₹120, the chart will plot “X” at every price interval of ₹5, i.e. at ₹100, ₹105, ₹110, ₹115 and ₹120.
Likewise, the chart has a secondary setting called the “reverse size” which defines the price by which the underlying has to move in the opposite direction to warrant a new column.
Ex: If the reverse size is set at ₹3 and prices move in the opposite direction by a similar value, a new column will be formed. Since the box size is set at ₹5, the next box will pop up only when prices continue in the reverse direction by atleast ₹5.

 

Analysing P&F charts-
The basic techniques used to analyse P&F charts are very similar to that used in analysing conventional charts. A sequence of “O” columns with identical lows is one way of defining supports. Likewise, a sequence of “X” columns with identical highs are considered resistances. In addition, trendlines are plotted to identify chart patterns and breakouts just as in conventional charts. However, chartists should experiment with various box and reversal sizes as one style may not work for all securities.
Traders interested in exploring P&F charts can find a number of detailed articles on the net with in-depth analysis. Hope you find them useful…

 

 

Compositedge, incorporated in 1995, is a leading discount broker and provider of algo trading solutions for retail customers in India. Headquartered in Bangalore, we provide the internationally acclaimed Protrader platform which comprises of charts, scalper, matrix, grid, time & sales, market-depth and options master in addition to the state of the art algo trading platform. We combine discount broking and algo trading solutions to ensure all our retail clients experience the finest trading amenities at affordable costs.