Jeremy du Plessis CMT, FSTA Head of Technical Analysis, Updata plc updata.co.uk

1. Point and Figure Charts Jeremy du Plessis CMT, FSTAHead of Technical Analysis, Updata plcwww.updata.co.uk Why you should be using them European Conference 2007 London, 7th February

2. Reasons to use P&F Charts • ‘Voice of the Market’ • Only move when market moves • Unambiguous signals • Objective trend definition • Multiple time horizons from same data • Objective price targets & risk-reward ratios • Better for Relative Strength analysis • Ideal for scanning of stock universes

3. Point and Figure Chart

4. What is a Point & Figure chart? • Typically (not always) constructed with Xs and Os • Xs represent up movements • Os represent down movements • Price is scaled on the vertical Y-axis • No time scale along the horizontal X-axis • Time not part of construction or analysis • X and O represents a price interval - Box Size • Price changes below the box size are ignored • Column changes determined by Reversal Size

5. Where did they come from? Started off as a price recording mechanism and became a charting method How?

6. Where did they come from? 19th Century Floor traders wrote prices down as stock traded (including fractions) 8 9½ 11¼ 12 12½ 13¾ 15 15½ 16 16½ 15 13¾ 12 11¼ 14¾ 15¼ 16 17½ 19¾ 20 21¼ 19½ 18¾ 19

7. Where did they come from? But realised that fractions didn’t add anything. So removed fractions 8 9 11 12 12 13 15 15 16 16 15 13 12 10 10 11 11 14 15 16 17 19 20 21 19 18 19 20 20 21 23 First tenet of Point and Figure established

8. Where did they come from? After a Busy Trading Day 8 9 11 12 12 13 15 15 16 16 15 13 12 10 10 11 11 14 15 16, 17 19 20 21 19 18 19 20 20 21 23 21 22 23 22 20 19 18 17 18 19 19 18 19 19 20 21 22 23 21 22 20 21 19 18 17 16 18 17 16 18 19 19 18 17 18 19 19 20 21 21 22 22 21 21 22 23 18 19 19 18 19 19 20 21 22 23 21 22 20 21 19 18 17 16 18 18 19 19 18 19 19 20 21 22 23 21 22 20 21 19 18 17 16 18 Difficult to make any sense

9. Where did they come from? Realised columns would be easier and more informative 16 15 14 14 13 13 13 12 12 12 11 11 11 10 10 9 8

10. Where did they come from? Started to notice patterns in the data

11. Where did they come from? Price record becomes a Figure Chart

12. Where did they come from? Figure chart becomes a Point Chart

13. Where did they come from? Traders referred to their point charts and their figure charts as their…. Point and Figure charts! And so Point and Figure was born

14. Where did they come from? Modern Point and Figure chart

15. Various Construction Methods • Column Reversals • 1-box – original method • 3-box – most popular • Data required • Tick – plot each price – original method • Too much data for longer term analysis • Daily - using Close or High/Low • Ideal for longer-term analysis • Intraday – using 60min, 1min close or high/low • Ideal for shorter-term

16. Unambiguous Signals All 3-box P&F signals based on Double-top and double-bottom break (1-box patterns are more complex) The wider the pattern the stronger it is

17. Unambiguous Signals Triple-top and triple-bottom break

18. Unambiguous Signals • Signals are unambiguous…. • BUT not every signal should be taken • Signals put you in the right frame of mind • Point and Figure analysts • Look left for Support or Resistance • Look left to see if it is part of a bigger pattern • Look for common Point and Figure patterns • Use the Trend lines to confirm or reject signals

19. Point and Figure Trend lines Trend lines vital for Point and Figure analysis Two ways to draw Trendlines: • Subjective • Lines can placed subjectively to show trend • Objective – advantage of Point and Figure charts • Lines drawn at 45° from tops and bottoms • 45° = one box up/down, one column across • Defines bull and bear trends

20. 45° Trend Lines – Nasdaq

21. 45° Trend Lines – Nikkei 225

22. 45° Trend Lines – S&P500

23. 45° Trend Lines – FTSE 100

24. 45° Trend Lines – FTSE 100

25. Add Subjective Trend Lines ?

26. Or better to add 45° Internals

27. Trends & Internals - DJ Stoxx

28. Trends & Internals on Oil

29. Trends & Internals EURO

30. Advantages of 45° Trend Lines • Can be drawn immediately after top/bottom • Objective - can’t argue with them • They alternate and carve up the chart • Easy to see bullish and bearish sections • Add dimension to the chart • Help accept or reject Point & Figure signals • Can see the trend easily

31. Uptrend or Downtrend?

32. Are you sure?

33. Point and Figure Scaling In Point and Figure terms: • Arithmetic: Fixed points box size • Log: Percentage Box Size

34. Arithmetic Chart - Vodafone

35. Log Scale Chart - Vodafone

36. Log or Arithmetic? • Log better:- • For medium and long-term analysis • Where large rise and fall • Where rise has been exponential • Arithmetic better:- • For linear price rises • For charts in a price range (e.g. Bonds) • Essential for intraday charts especially tick charts • Essential for Forex

37. Multiple Time Horizons • Changing the Box Size changes the Sensitivity • Changing Sensitivity changes the Time Horizon • Obtain Short, Medium and Long-term view from same data • Log scale % boxes ideal for this

38. 2% Box = Long-term View

39. 1% Box = Medium-term View

40. 0.5% Box = Short-term View

41. EURO Daily - 100pip

42. EURUSD Daily - 50pip

43. EURUSD Daily - 25pip

44. EURUSD Daily - 10pip

45. EURUSD Hourly – 10pip

46. Objective Price Targets • Unambiguous way to obtain targets • Two Methods: • Vertical Count - based on thrust off low or high • Horizontal Count - based on pattern width • Unambiguous does not imply accuracy • Targets and trends go together • Achieved and unachieved targets tell you • Trend strength/weakness • Warn of trend deterioration

47. Vertical Targets - NASDAQ

48. Vertical Targets - NASDAQ

49. Vertical Targets - NASDAQ

50. Vertical Targets - NASDAQ