A Point & Figure Chart is a unique and powerful charting technique used in technical analysis that focuses exclusively on price movements, completely ignoring the element of time. Unlike traditional charts such as candlestick or bar charts, which plot price against time (e.g., minutes, hours, days), Point & Figure charts plot price changes using columns of Xs and Os to represent uptrends and downtrends, respectively. This distinctive approach helps traders filter out market noise and concentrate on significant price movements and trends.

In a Point & Figure chart, price movements are recorded only when they exceed a predefined amount, known as the box size or box value. Movements smaller than the box size are ignored. For example, if the box size is set to 1, the chart will only record price changes of at least one unit (such as $1 or 1 pip). When the price rises by that amount, an X is added; when it falls by the box size, an O is added. The chart switches between columns of Xs and Os when the price reverses direction by a specified reversal amount, which is typically a multiple of the box size (commonly three boxes). This reversal criterion helps to filter out minor retracements and whipsaws.

Formula for reversal amount:
Reversal Amount = Box Size × Number of Boxes (usually 3)

For example, if the box size is $1 and the reversal is set to 3 boxes, the price must move at least $3 in the opposite direction to begin a new column.

One of the key strengths of Point & Figure charts is their emphasis on supply and demand dynamics. Because they ignore time, these charts strip away irrelevant fluctuations and highlight clear support and resistance levels, breakouts, and price targets. They are particularly useful for identifying long-term trends and price patterns such as double tops, double bottoms, and bullish or bearish price objectives.

A real-life example: Suppose a trader is analyzing the stock of Apple Inc. using a Point & Figure chart with a box size of $2 and a three-box reversal. If Apple’s price moves from $150 to $156, the chart will display three Xs in a column (one X per $2 increment). If the price then falls to $150, the chart will only switch to a column of Os after a $6 (3 × $2) decline from the recent high, thereby filtering out small pullbacks and focusing on meaningful reversals.

Common misconceptions about Point & Figure charts include the belief that ignoring time reduces their effectiveness. However, many traders find that by focusing purely on price action, these charts help eliminate the noise and emotional bias that often come with watching price changes over fixed time intervals. Another frequent mistake is setting inappropriate box sizes or reversal amounts. Too small a box size may cause the chart to capture insignificant price movements, resulting in a cluttered chart, while too large a box size might miss important price signals.

People often search for related queries like “How to read Point & Figure charts,” “Best box size for Point & Figure charts,” or “Point & Figure chart vs. candlestick chart.” It’s important to remember that Point & Figure charts complement rather than replace other chart types. They are best used alongside other indicators and analysis tools to confirm trends and entry or exit points.

In summary, Point & Figure charts provide a clear and concise way to view price movements by filtering out time and focusing on significant price changes. This makes them valuable for traders looking to identify strong trends and key support or resistance levels without being distracted by minor fluctuations.