“Point and figure” charts – what are they and how to trade them

Do you want to know what is the difference between Point and Figure Charts and Kagi Charts? Watch our latest video to learn how to read point and figure charts and how to trade them.

Point and figure Charts – How to trade them

Hello and welcome to Diary of a Trader. And in today’s video we’re going to go over another type of chart option, that’s called, “Point and Figure”. You’ve probably seen this before. If I go up to the TradingView’s different types of charts that I can look at where we have Bars, Hollow Candles, Heikin-Ashi, Line, Area, Baseline, Renko, Line Break, Kagi, all those, but what we want is Point & Figure. And Point & Figure is going to be a lot like Kagi, or Renko, or Gann’s Swing Charts, you know, where with Kagi charts, there is no time involved. Point and  Figure is only a price driven style and that is all we need to worry about is just price and we’ll notice that we have Xs and Os and ultimately, you know, this is just time-based price movements that don’t take into consideration the time. And if we look at this, we see that the Os represent bearish movement and the Xs represent bullish movement. And right now, by default, what TradingView will do, is will set it to ATR and the reversal amount is shown as 3, so that means that we would need three of the Xs or Os to form a new line, and each line or column, as they’re called, is only going to have Xs or Os. So the ATR it says is 0.00015. The problem with ATR is that it changes and adjusts so it could change from one moment to the other, so I like to use, I’d recommend that you use the Static setting, so I could go with the Box Size, so each X or 0 is going to represent 5 pips. And then, the reversal amount of 3, means that when there are 3 or 15 pips of movement, that’s going to reverse the candlestick or, sorry, rather the direction and paint the Xs or the Os. So, if we’re looking at this Pound/Dollar chart, we can see it’s a very actually clean chart because we can really identify where a lot of our trend lines are going to go. So, we can see there’s a trend there, we have a short-term trend down here, we can draw our Fibonacci levels like we have sitting here. Let’s actually draw our Fib level from this swing to swing, for a long-term Pib swing and then we could also draw it from the most recent swings as well, from here to here.

And so, what is a common way to trade Point and Figure charts is that, let’s say that we know we are in a kind of a consolidative zone here, what we would look for to do is, let’s say we are trading in this range here, then we would probably want to put a buy level above the X of the prior column. That would be a good buy entry. Also, a good sell entry would be if we were trading up here, we took profit, we saw a low was made, but it didn’t breach a prior column low, we just keep looking and looking, and then finally, when we see that there is price that moves beyond the previous low of a column, that’s when we would enter in a short. And we can see this kind of progress as we go along. It’s also very easy to spot areas of support and resistance because they’re very flat levels. You know, for some people the 5 pips is too fast so we could actually go to 10 pips if we want, and then it will reduce the trade opportunities you have, but it will give you more accurate changes. That’s kind of the danger with a lot of these price-only based charts, like Renko and Kagi charts, and range-based charts and then we have the Point and Figure is that you can be stuck at a certain column for quite some time before it changes, but at that same time, you know, when you have a smaller brick or a smaller box size, then you run the risk of getting into a lot of false breakouts or you can end up just getting in and out of trades too fast. But then, the problem is you think, well I should go with a longer time frame or not a longer time frame, a higher box size, you get into the problem then of not getting very many signals and so that can sometimes bother people too. But the signals that you would get on the longer time, not the longer time, from the higher box count, are going to be more representative of an honest and sustained move. So, certainly, as we see here, in the most recent price action, we see that, when price rallied up a little bit and then we formed a new column of Os, when we broke the prior low there, you know, we can see, or actually, if you didn’t want to break the prior low, you could draw a triangle and there was a triangle there. When we broke that and painted a 0, then certainly the short trader was correct.

So, what are we looking for here, right where we’re at, well, the close here, on the circle, was 1.3160 and so, we are at a 10 pip count brick, so that means we would have to trade up 30 pips from here, so we would need to trade up to 90. So, once we got up to 1.3190, we would end up painting our green Xs on here and then that would tell us that we are getting close to some type of reversal. And then, ultimately, let’s say we had those green Xs fill up this entire column here, where would our buy entry be? We have a couple of options. We could buy up on the re-entry into this upwards trend line, or we could wait until we broke the previous X, the high of the previous X, we could trade that there too. So there’s a couple of options but Point and Figure charts, this is an old school way of looking at charts, it’s been around for quite a long time. It’s a very, very, very effective form of trading. In fact, if we use the Ichimoku or not the Ichimoku system, the Volume Profile, that is another tool in our trading toolbox that helps us with trading the Point and Figure charts. Point and Figure charts, again, just like Renko, if you are somebody who struggles with candlesticks and interpreting candlesticks or gets whips out of too much candlesticks, then maybe something like Point and Figure is that chart for you because not everybody can trade candlesticks. It’s not meant, you know, there are various chart styles because they adapt to certain people so yeah. Hope you guys found this video interesting and I look forward to talking with you in our future videos! Bye-bye.