A new column is only added when a reversal in an existing column exceeds the reversal threshold. The most common amount of reversal threshold is three boxes or three points. Try 1500 Pips a day Forex Signals.
If the box size is set at 10 pips and the reversal amount is set at three boxes, the reversal amount in pips is 30 pips. So in case of a rising X column, price would need to turn back by at least 30 pips before a new O column would be added.Download your 82 page Candlestick Guide with strategy flash cards!
The significance of these two variables, the box size and the reversal threshold should be clearly understood. These two variables make the point and figure chart so effective at representing only the most major market moves disregarding all minor fluctuations known as noise.
The point and figure charts are excellent indicators of both trend and support/resistance. Since point and figure charts outline support and resistance so well, one of the best trading strategies in most common use with the point and figure charts is breakout trading.Don’t miss 1500 Pips a day Forex Signal Service!
In bar and candlestick charts, a double top is a potential bearish reversal signal. Now there is a notable distinction between the bar and candlestick charts and the point and figure charts in the interpretation of double and triple tops and bottoms.
However, on the point and figure charts, a double top is a resistance point where traders should be looking for a bullish break to the upside. The same difference holds for the double bottoms as well as triple tops and bottoms.
Charts patterns like triangles are prevalent as well. Like the horizontal support and resistances levels on these charts, the main method of trading trendlines and pattern on the point and figure charts is through breakouts. Point and figure charts also have their own versions of diagonal trend lines which are drawn at 45 degrees.
Price action is the most important aspect of technical trading. Point and figure charts give a very clear view of the market movements. The point and figure charts focus exclusively on the price action.
Point and figure charts had originated in the 19th century. It is because of this clarity in viewing and interpreting the price movements that the point and figure charts have withstood the test of time and are still popular with traders today as an increasing relevant analytical tool for forex traders.
Without the extraneous elements to clutter the picture, point and figure charts excel at representing clear evidence of such important technical characteristics as trend, support/resistance and breakout.
Other data that is readily available on the bar and candlestick charts like time, period opens/closes are generally excluded on the point and figure charts. This leaves only the uncluttered purity of price action. Some may characterize point and figure trading as based upon pure price action.