Point-and-Figure (P&F) Chart
Candlefocus EditorUnlike a bar chart, which plots price data over time, a P&F chart plots only the changes of security price, not the actual price movement. A P&F chart has a constant-time span, meaning that the chart is not updated until the security's price moves by a predetermined amount (box size). This lack of time factor eliminates false signals generated by short-term noise and gives the chart a more accurate look by considering current market trend.
An X is created when the price moves higher by a set amount, called the box size. An O is created when the price drops the box size amount. X's and O's stack on top of each other, respectively. The box size is set based on the asset's price and the investor's preference. The formation of a new column of X's or O's occurs when the price moves contrary to its current trend, and does so by more than the reversal amount.
Although P&F charting is a relatively easy-to-understand analysis tool, there are some drawbacks to using this type of analysis. Mainly, because the P&F chart does not take into consideration the time element, it does not indicate the current trend that the security may be in. As with any charting methods, P&F charts should only be used in conjunction with other methods of technical analysis to gain a better understanding of the security's current and potential price movements.