What is the only thing in trading that matters? Price.
So why does almost every type of charting take time into consideration? Should it matter if it take 30 minutes for the EUR/USD to go up 60 pips or if it takes 30 hours? Not really. The important thing is that it went up 60 pips.
This is why Point and Figure is so amazing. The only factor in the movement of the chart is price. That is a major reason why point and figure is a great method for charting but their are several more.
It helps filter out the “noise” or small price movements that can be distracting on other charts. This is because of the 3 box reversal. One of my favorite charts to trade is the 10 pip box. This means it takes 30 pips before there is ever a reversal in the chart but only a 10 pips to continue on with the column. This filters out the small movements in the price and allows you to focus on only the major moves.
The columns of X’s and O’s could not be make it easier to see buy and sell signals. It also clearly shows support and resistance and makes it so there is no confusion. This in and of itself is a huge benefit.
You add all of those up and then add on a few technical indicators, which I will discuss later, and you are headed in the right direction for a profitable trading system.
What are your reasons for or against using point and figure charts in trading the forex?
No one knows exactly where Point and Figure charts originated or who invented them. Charles Dow, nineteenth century Wall Street Journal editor and Dow Jones & Company co-founder, is most often credited for developing the point and figure method.
In 1901 he wrote an editorial in the Wall Street Journal describing what he called the Book method because it was plotted from the ticker, often referred to as the market book. The first Point and Figure looked something like this:
The above chart was called a “figure chart” as it placed each figure (number) in the box as the price increased or decreased in value. This method became very difficult as it was almost impossible to use if you wanted to use 1/2 figure charts as you would have to put 10, 10 1/2, 11, 11 1/2, 12, 12 1/2… This made the chart both difficult to read and tedious to write out.
To simplify the chart it changed into a “point chart” which instead of listing each number only used an “X” for each row while having the value placed on the left side. This made charting much quicker and also much easier if you wanted to use a value other than a whole number.
The next evolution was to combine the “figure chart” and the “point chart” to create a chart which placed a five (5) and a zero (0) in place of an “X” so that it was easier to keep track of the price as it moved.
This is believed to be how the name “Point and Figure Chart” came about.
It was not until A.W. Cohen’s book in 1947 How to use the Three Point Reversal Method of Point and Figure Stock Market Trading that the use of “X” and “O” are both used. The “X’s” indicated price going up and the “O’s” showed when price was going down. This is how a Point and Figure chart is now created.
That was a very brief version of the history of the Point and Figure chart. If you would like a more in-depth look check out chapter 1 in The Definitive Guide to Point and Figure by Jeremy du Plessis.
Here is a list of some of the first books on Point and Figure.
The Point and Figure Method of Anticipating Stock Prices: Complete Theory & Practice
by Victor deVilliers 1933
Graphs and Their Application to Speculation
by George Cole 1936
The Game in Wall Street and How to Play it Successfully
by “Hoyle” - anonymous writer 1898
How to Use the Three-point Reversal Method of Point and Figure Stock Market Trading
by A.W. Cohen 1947