Point and Figure: The Chart Where a New Column Appears Only After a Reversal

A point and figure chart is a way of plotting price without a time axis: a column of Xs grows while the market rises, a column of Os extends downward while the market falls, and a new column begins only when a move in the opposite direction exceeds a threshold set in advance. While the price fluctuates within that threshold, nothing at all appears on the chart: no mark, no blank space. This is exactly what sets it apart from the familiar candlestick chart, where every interval leaves a trace whether or not anything actually happened during it.

Box and reversal threshold: the entire mechanism

A chart of this kind has parameters, and both of them are fixed before it is drawn.

The first is the box size. This is the increment the price must travel for another mark to be added to the current column. If it moves less, no mark is added. If it moves a multiple of the increment, several marks are added at once, but all in the same column.

The second is the reversal threshold. It is measured in boxes and answers one question: how far must the price pull back for the charting engine to close the current column and start a new one of the opposite sign next to it. The classic threshold value, the one most terminals use by default, is a specific number; it depends on your platform and settings, and we do not quote it here because the site's database does not hold that constant. Check it in your chart settings.

From there the algorithm is mechanical:

• Step 1. The price moves in the direction of the current column by one box size, and a mark is added.
• Step 2. The price fluctuates by less than one box, and nothing happens.
• Step 3. The price pulls back by the reversal threshold, the column closes, and a new one starts to the right.

None of these steps depends on how much time has passed. A reversal that took a day and one that took months look identical on this chart.

What exactly gets discarded

What gets discarded is time and the noise inside each box. A sideways market in which the price trades in a narrow band will occupy a wide stretch of the screen on candlesticks, but on a point and figure chart it compresses into a couple of columns. Conversely, a sharp trend that played out over a short period stretches into a long column.

The price of this simplification is lost information. You cannot see when exactly a move took place, you cannot see the volume inside a box, and you cannot see gaps as breaks: a gap is simply filled in with marks in the same column. If what you need is the microstructure of trading, this chart type is useless; for that there is the tick chart, whose unit is a trade rather than a price increment.

How signals are read from it

Because the columns are aligned to a grid, levels are visible in a literally geometric sense. The main things traders look for on it are:

• A breakout above the top of the previous X column: the price has risen above the point where the last upward move ended.
• A breakdown below the bottom of the previous O column: the mirror situation to the downside.
• Diagonal lines drawn through the corners of the boxes from a significant low or high: the grid allows only one possible slope, so such a line is constructed unambiguously, without artistic licence, unlike a trendline on candlesticks.
• The width of a pattern: the horizontal extent of a sideways range is sometimes used to estimate the scale of the subsequent breakout.

The main practical advantage here is the objectivity of the markup: on a point and figure chart a level is either broken or it is not, and two people using the same settings will see the same thing.

How it differs from Renko

These charts are often confused because both ignore time. The difference lies in the construction rule: in Renko every brick is the same size, and a brick is laid in the opposite direction only after a move of one brick size, so a reversal costs exactly one brick. In point and figure, the reversal and the box size are independent parameters, and the reversal threshold is usually noticeably larger than a box. As a result, point and figure filters out fluctuations more aggressively, while Renko stays closer to the price. More on the second construction can be found in the article on Renko; the general classification of display methods is covered in the glossary entry chart type.

Where it is applicable

This chart behaves most sensibly on instruments with a clear trend and sufficient liquidity: for securities from the list of Russian stocks and for OFZ bonds, the grid builds without gaps. On thinly traded issues, boxes will fill in fits and starts, and the picture will turn out random. Before configuring the chart, it is worth looking at the instrument page, SBER, and choosing a box size comparable to the typical daily range rather than a round figure picked because it looks neat. Definitions of the terms used are collected in the glossary.

Point and figure charts offer no edge in themselves. What they offer is discipline in markup: the decision about what counts as a move is made before the trade and locked into the parameters.