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Point & Figure (P&F) charts are one of the simplest and clearest ways to determining the best time to buy and sell shares. The P&F system represents one of the oldest approaches to share market trading. This method takes the technical analysts approach while monitoring supply and demand for each share. And the charts are designed for long-term trading so that the time and cost of trading shares is minimal.
Traditional P&F charts where linear, but we use a semi-logaritmic scale, where every 'o' or 'x' is about the same step whether you are on the bottom or on the top of the screen. the distance between 2 lines (4 x, or 4 o's) is about 7,5%.
this makes it easier to compare different charts, even if one stock is in the $200 range and one stock is in the $20 range.
An column of 'x' shows a uptrend and a column of 'o' shows a downtrend, the price must reverse direction by an amount equal to three boxes for it to be considered significant.
When analysing the charts to determine the best time to buy and sell shares, the following criteria must be evaluated:
- Breakouts From Trading Formations
See the following pages for trading formations.
- Trend Lines
Trend lines indicate the general direction the stock is heading, when such a line is penetrated, it is often a buy or sell signal, see the following pages for examples.
- Market Indicators
Before buying and selling shares, it is necessary to assess 2 market indicators:
The industry group to which the share is associated.
The market as a whole. This should be assessed via inspection of the indices like the Dow
Jones Nasdaq, S&P etc.
Shares should only be purchased when the market as a whole is bullish. Similarly, shares must be selected from industry groups that are bullish and acting better than the rest of the market.
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