POINT & FIGURE🔸🔸🔸 1 - Back to the Roots: Learn the Theory, Improve Signal 🔸🔸🔸
Many traders believe that history repeats itself. Others think past performance can clearly explain what will happen next. The most common mistake is believing that technical indicators, calculated only from past data, can predict the future.
In reality, price charts do not show the future. They show only what has already happened and what is happening right now. Nothing more.
For this reason, we do not use charts as prediction tools. We use them as decision tools. Their purpose is not to tell us what will happen, but to help us build a roadmap in an uncertain future - a strategy, not a forecast.
To do this properly, we must understand the theory behind price behavior. Without theory, charts become pictures. With theory, they become structure.
That is why learning theory comes first.
🔸🔸🔸 2 - Point & Figure 🔸🔸🔸
Financial markets produce more information than traders can process. Prices move constantly, news never stops, and decisions must often be made under pressure. The real challenge is not accessing data, but turning that data into something useful.
Point & Figure (P&F) charts were created to address this problem. Instead of reacting to every small fluctuation, they record only meaningful price movement. By removing time and minor noise, Point & Figure charts provide a clear and structured view of market behavior.
Point & Figure charts display price movement only. Time is completely ignored. This is the main difference between Point & Figure charts and traditional bar charts.
In bar charts, both price and time are part of the structure. The vertical axis shows price, while the horizontal axis represents time. As time passes, new bars are added to the right side of the chart. Even if price stays the same, a new bar is still printed for each time period.
Point & Figure charts work in a very different way. There is no time axis. The horizontal space does not represent days or hours. The chart grows only when price moves enough to matter.
Price is plotted using fixed price boxes.
When price rises, Xs are added.
When price falls, Os are added.
If price continues moving in the same direction, the chart stays in the same column. For example, if price rises continuously for 5 days without a pullback equal to the reversal amount, this entire move appears as a single column of Xs. In a bar chart, the same move would create 5 separate bars.
If price does not meet the predefined rules, nothing is added to the chart. No X, no O. In contrast, time-based charts will always print a new bar simply because time has passed.
🔸🔸🔸 3 - Point & Figure Graph 🔸🔸🔸
Before drawing a Point & Figure chart, two parameters must be defined:
Box Size
The box size determines how much price movement is required to add a new X or O.
In this example, the box size is set to $20 . This means:
Every $20 rise adds one X upward.
Every $20 drop adds one O downward.
Reversal Amount
The reversal amount defines how many boxes price must move in the opposite direction to start a new column.
In Point & Figure charts, Xs and Os never appear in the same column. Each column contains only Xs or only Os.
In this example:
Box size = $20
Reversal amount = 3 boxes
This means a reversal requires a $60 move in the opposite direction.
Graph A
If the current column is an X column and price continues to rise, new Xs are added to the same column as long as the box size rule is met.
Graph B
When price falls by 3 boxes ($60), a new column begins to the right. Three 0s are placed starting one box below the highest X of the previous column.
Graph C
If price continues to fall, additional Os are added downward in the same column.
Graph D
If price then rises by 3 boxes ($60), another new column starts. Three Xs are placed one box above the lowest O of the previous column.
Graph E
As long as price continues higher without another 3-box reversal, Xs keep extending in the same column.
🔸🔸🔸 4 - The Rules for Plotting Point & Figure Charts 🔸🔸🔸
Before drawing a Point & Figure chart, a few basic rules must be defined. These rules determine which price source will be used and how price movement will be measured. The chart can be built using Close prices or High–Low data , and the box size can be calculated in different ways, such as Fixed value, Percentage, or ATR-based methods.
Each choice affects how sensitive the chart is to price movement and how much noise is filtered out. Understanding these rules is essential, because a Point & Figure chart only reacts when price movement meets the predefined conditions - nothing more, nothing less.
📌 4.1- High-Low Price Source
Preference is always given to price movements that continue the current trend. The price in the opposite direction is considered only if the trend cannot be extended.
The process starts by defining two key parameters: box size and reversal amount. In this example, the box size is set to $20, and the reversal amount is 3 boxes. These values determine when the chart should update.
The algorithm first reads the high and low prices of the current timeframe candle. The next step depends on the current column direction.
4.1.1 - When the Current Column Is Xs (Uptrend)
If the chart is currently in a column of Xs , preference is given to upward price movement.
The algorithm first checks whether the current candle's high is at least one box above the previous high.
If this condition is met and the box is fully filled, new Xs are plotted in the same column.
If the price does not move high enough to extend the X column, only then is the low price checked.
If the candle's low falls at least three boxes below the previous high, a reversal occurs:
A new column begins to the right.
Three Os are plotted, starting one box below the highest X of the previous column.
If neither condition is met, the chart remains unchanged.
4.1.2 - When the Current Column Is Os (Downtrend)
If the chart is in a column of Os , preference is given to downward price movement.
The algorithm first checks whether the current candle's low is at least one box below the previous low.
If the box is fully filled, new Os are added to the same column.
If the price does not extend the O column, the algorithm then checks the high price.
If the candle's high rises at least three boxes above the previous low, a reversal is triggered:
A new column starts to the right.
Three Xs are plotted, starting one box above the lowest O of the previous column.
Again, if neither condition is met, no action is taken.
📌 4.2 - Close Price Source
When the Close Price is used as the price source, the same plotting algorithm applies without any structural changes. The only difference is that high and low values are ignored. All decisions - box extensions and reversals - are made using closing prices only . If the close fills a box in the direction of the current column, new Xs or Os are plotted. If the close reaches the reversal amount in the opposite direction, a new column is started.
📌 4.3 - Box Size Method
Box size defines how much price must move before a new X or O is plotted on a Point & Figure chart. For this reason, box size directly controls the sensitivity of the chart. A small box size produces more signals and more noise, while a larger box size filters noise but reacts more slowly.
Choosing the correct box size is one of the most important decisions in Point & Figure charting. Markets differ in price level and volatility, and these characteristics can also change over time. A single box size cannot work equally well for every instrument or every market condition.
Each method has its strengths and weaknesses. The key is not finding a "perfect" box size, but choosing a method that matches the behavior of the market and the objectives of the trader.
To address this, Point & Figure charts commonly use three different box size methods:
4.3.1 - Fixed Box Size
The box size is defined as a fixed price value (for example, $20 per box). This method is simple and easy to understand, but it does not adapt to changing volatility.
4.3.2 - Percentage Box Size
In the percentage box size method, each box represents a constant percentage of the current price rather than a fixed price value.
Using a percentage-based box size helps normalize charts across markets with different price ranges and makes long-term comparisons more meaningful. However, because the box size is recalculated as price changes, the chart effectively adapts continuously. Rising prices increase the reversal distance, which can delay reversals and extend trends. Falling prices reduce the reversal distance, potentially triggering reversals more quickly.
While this method improves adaptability compared to fixed box sizes, it does not directly measure volatility. In markets where volatility changes sharply without large price changes, fixed percentage-based box sizing may still produce inconsistent signals.
4.3.3 - ATR-Based Box Size
The ATR Box Size method adjusts the box size based on market volatility rather than price alone. Instead of using a fixed value or a percentage of price, each box is calculated as a multiple of the Average True Range (ATR).
ATR measures how much price typically moves over a given period. As volatility increases, ATR rises and box sizes become larger. When volatility decreases, ATR falls and box sizes become smaller. This allows the Point & Figure chart to adapt naturally to changing market conditions.
For example, if the 50-period ATR of an instrument is 8 points and the ATR multiplier is set to 1.0, each box represents 8 points. A 3-box reversal would therefore require a 24-point move. If volatility later doubles, the box size increases automatically, filtering out noise during highly volatile periods.
ATR Box Size does not predict price direction. It simply ensures that the chart reflects meaningful price movement relative to current volatility, keeping the focus on true supply and demand rather than random fluctuations.
🔸🔸🔸 5 - Point & Figure on TradingView 🔸🔸🔸
This section explains how to open Point & Figure charts on TradingView and how to adjust the key parameters properly. Before discussing trading techniques, it is important to understand how to enable Point & Figure charts and configure their settings correctly.
📌 5.1 - Enable Point & Figure from Chart Type Menu
Point & Figure charts can be enabled directly from the Chart Type menu on TradingView. To activate it, open the chart type selector and choose Point & Figure from the list.
Note: Point & Figure charts are available only on TradingView Plus and higher plans.
Good news 🚀 At the end of this article, you can find the link to the indicator I developed based on Point & Figure logic.
📌 5.2 - Chart Settings
To change Point & Figure settings, right-click on the chart and select Settings from the menu. Then, open the Symbol tab to adjust the Point & Figure parameters. These settings allow you to control both the visual appearance of the chart and the logic used to build it.
Up Bars
Customize the color of rising columns (X columns).
Down Bars
Customize the color of falling columns (O columns).
Projected Up Bars
Represents potential rising columns (Xs) based on the current price before the bar is closed.
Projected Down Bars
Represents potential rising columns (Os) based on the current price before the bar is closed.
Source
Selects which price data is used for Point & Figure calculations (such as Close or High/Low). The logic and differences between these source types are explained in Section 4 .
Box Size Assignment Method
Choose how the box size is calculated:
Traditional: A fixed, user-defined box size
Percentage (LTP): Box size is calculated as a percentage of the last closed price
ATR: Box size is based on the Average True Range
The logic and usage of each method are explained in detail under the Box Size Methods section in Section 4.
ATR Length
If the ATR method is selected, this defines the look-back period used to calculate volatility.
Box Size
When using the Traditional method, this value defines the fixed price movement required to add one box.
Reversal Amount
Defines how many boxes price must reverse before a new column is created. The most common setting is a 3-box reversal.
Percentage
When using the Percentage (LTP) method, this value defines the box size as a percentage of the last closest price.
🔸🔸🔸 6 - Point & Figure Trading Technique 🔸🔸🔸
In this section, we will focus on three core trading techniques that are commonly used with Point & Figure charts: Reversal-based entries, Vertical Count, and Horizontal Count. Each method approaches the market from a different perspective - risk control, trend projection, and consolidation analysis - while remaining fully consistent with Point & Figure principles.
📌 6.1 - Reversal Based Entries
Point & Figure trading is based on breakouts to new highs and new lows. The most basic signals are simple and well defined:
Buy when the current column of Xs breaks one box above the previous X column.
Sell when the current column of Os breaks one box below the previous O column.
Using these basic rules, the trader is almost always in the market, reversing positions when an opposite signal appears (except in long-only stock trading).
In the figure above:
A new high is formed by breaking one box above the top of the previous O column, generating a buy signal. The stop-loss is placed one box below the lowest level of the prior column.
Price fails to show sufficient continuation and reverses downward with a 3-box reversal. When price breaks one box below the bottom of the previous X column, a sell signal is triggered, stopping out the previous long position.
After the pullback that follows the breakout, price turns upward again. A new buy signal occurs when price rises one box above the top of the previous O column. The stop-loss is placed one box below the lowest X in the current column.
However, many traders prefer alternative entry techniques to reduce risk and avoid false breakouts. One of the most common approaches is to enter after a pullback, rather than buying immediately at the breakout. This method limits risk while still respecting the Point & Figure structure.
Instead of buying at the first breakout, the trader waits for a reversal and enters at a lower price (or a higher price for short positions) that aligns with an acceptable risk level. This approach aims to reduce risk by waiting for a pullback, allowing entry closer to the stop-loss level. However, this comes with a trade-off: while risk is reduced, some trading opportunities may be missed if price continues in the breakout direction without a meaningful pullback.
📌 6.2 - Horizontal Count
In Point & Figure charting, the time price spends in a consolidation area is considered related to the size of the next price move. The longer the consolidation, the larger the potential breakout.
The horizontal count method is used to estimate price targets based on this idea.
6.2.1 - Upside Horizontal Count
To calculate an upside price objective:
Upside Target = Lowest price of the base + (Width × Reversal Value)
Lowest price of the base is the lowest box in the consolidation area
Width is the number of columns in the base (excluding the breakout column)
Reversal value is the box size multiplied by the reversal amount (for example, 3 (boxes) x 20$ = 60$)
Steps:
Identify the base after the breakout has occurred.
Count the number of columns across the base.
Multiply this number by the reversal value.
Add the result to the lowest price of the base.
This gives a projected upside price target.
6.2.2 - Downside Horizontal Count
The downside objective is calculated in the same way, but in the opposite direction:
Downside Target = Highest price of the top − (Width × Reversal Value)
Highest price of the top is the highest box in the distribution area
Width is the number of columns in the top formation
Reversal value is the box size multiplied by the reversal amount (for example, 3 (boxes) x 20$ = 60$)
Steps:
Identify the top formation after a downside breakout has occurred.
Count the number of columns across the top formation (do not include the breakout column).
Multiply the width by the reversal value.
Subtract the result from the highest price level of the top formation.
Key Notes
Wider bases or tops produce larger price objectives.
Smaller formations usually lead to shorter moves.
Multiple possible widths can be selected; closer targets are easier to reach, while wider counts often align with major support or resistance levels.
Horizontal counts provide price objectives , not guarantees, and should be used together with trend analysis and risk management.
📌 6.3 - Vertical Count
The vertical count is a simpler and more direct method than the horizontal count. It is used to estimate a price objective based on the strength of the first move away from a top or bottom. While the horizontal count measures accumulation or distribution, the vertical count measures volatility and momentum.
Like the horizontal count, the vertical count allows enough time to identify the formation and calculate the target before it is reached.
Purpose of the Vertical Count
Measures the initial price thrust after a confirmed top or bottom
Estimates how far price may travel in the direction of the new move
Often used to project retracements or continuation targets after major reversals
The vertical count relies on the idea that a strong first reversal often leads to a move of proportional size.
6.3.1 - Upside Vertical Count
To calculate an upside vertical count:
Confirm a bottom formation
Identify the first reversal column of Xs after the bottom.
Count the number of boxes in that first reversal.
Multiply this number by the minimum reversal value.
Add the result to the lowest box of the bottom.
Upside Vertical Count = Lowest box + (First reversal boxes × Minimum reversal boxes)
6.3.2 - Downside Vertical Count
The downside vertical count follows the same logic, but in the opposite direction:
Confirm a top formation.
Identify the first reversal column of Os after the top.
Count the number of boxes in that first reversal.
Multiply this number by the minimum reversal value.
Subtract the result from the highest box of the top.
Downside Vertical Count = Highest box − (First reversal boxes × Minimum reversal boxes)
Key Notes
The vertical count is based on volatility , not time.
It often provides conservative targets and may underestimate very strong trends.
Multiple vertical counts from nearby highs or lows can confirm each other.
Vertical counts are price objectives , not predictions, and should be used together with trend analysis and risk management.
🔸🔸🔸 7 - Conclusion 🔸🔸🔸
Finally, it is important to remember a principle that applies to all forms of technical analysis: Point & Figure charts, like any other method, are not a complete buy–sell system on their own.
Point & Figure does not predict the future, and it does not eliminate uncertainty. What it offers is something far more valuable: a structured way to interpret price behavior, free from time-based noise and emotional distraction. It helps us understand where supply and demand are truly in control, where risk is defined, and where decisions can be made logically.
For this reason, trading decisions should never be based on Point & Figure alone - or on any single technique. A robust trading strategy is built by combining multiple tools, perspectives, and confirmations. Trend analysis, support and resistance, market context, volatility, and risk management must all work together.
Even if Point & Figure charts are a core part of your approach, they should be seen as one weapon in a larger arsenal, not the entire strategy. The goal is not to find a perfect indicator, but to build a disciplined process where each tool supports and confirms the others.
Returning to theory gives us that discipline. And with theory in place, Point & Figure becomes not just a chart - but a framework for decision-making in an uncertain market.
