How to Use Point & Figure Charts

Point and Figure (PF) charts are a way to visualize price movements and trends in an asset without regard to the amount of time that passes. The columns of X’s represent rising prices.  Columns of O’s represent falling prices.   This method has been used for more than 130 years and is an excellent tool to objectively view markets and stocks.

The 30 – minute SPX 500 – PF chart courtesy of Trading View illustrates action from October 2022.

The SPX 500 – Trading View symbol is SPX 500, is an index on Trading View that’s similar to a continuous S&P 500 – futures chart with prices similar to the S&P 500 (SPX) . This is a good index to use with PF because it illustrates potential support/resistance areas outside of the SPX trading session.   

Illustrated on the chart are five areas noted 1 through 5 where PF analysis could be used.

Support/resistance zones develop in price clusters.  The wideness of the cluster is usually related to the strength of the support/resistance.

Note that in example “1” the decline bottomed out at the lower part of the price cluster.

Example “2” shows the use of trendlines.  A break below the rising trendline could have signaled the start of a downtrend.   The break in this case was to the upside.  The length of a trendline is related to the strength of the breakout.  The longer the trendline, the more powerful the breakout. The subsequent breakout in this example was very dynamic.

Example “3” illustrates a double bottom.  Sometime  there could be a considerable amount of upside action before a double bottom is broken.  The initial break of a double bottom/top may not be dynamic; however, it does alert the analyst of additional action in the direction of the break.

Example “4” shows another instance of a break above a declining trendline. Note that the declining trendline in example “4” is shorter than the declining trendline in example “2”.  The initial move above the example “4” trendline was less dynamic than the example “2” upside break.

Example “5” shows a potential double bottom forming.   Immediate upside action is needed to confirm the double bottom. If there’s an immediate move down it would be a break below a single bottom. 

There’s also another declining trendline from the most recent peak.  Breaking the declining trendline implies a move above the recent peak.

This is a brief outline of  Point & Figure analysis, there are severable books on the subject that give more information.  Recommended reading: “Trading the Markets  the Point & Figure Way” by Prashant Shah.