Point and Figure Charting Overview

Point and figure (P&F) charts ignore time and focus purely on price movements. Unlike candlestick or bar charts that plot every trading day, P&F charts only record price changes that meet specific thresholds. A stock that moves sideways for three months produces no new marks on a P&F chart—only significant moves generate signals. This filtering mechanism removes noise and clarifies the supply-demand structure that matters for identifying breakouts and setting price targets.

What Point and Figure Charts Measure (Why This Matters)

Traditional charts show every trading period regardless of price movement. P&F charts show only meaningful price changes, defined by two parameters:

• Box size: The minimum price increment recorded
• Reversal amount: How many boxes in the opposite direction trigger a new column

The practical chain: Raw price data → Box size filter → Reversal filter → Clean trend structure

A P&F chart with a $1 box size and 3-box reversal records a new X (upward mark) only when price rises $1, and switches to a new column of O's (downward marks) only when price reverses by $3. This creates charts that emphasize sustained moves and filter out minor fluctuations.

Box Size: Defining Price Significance

The box size determines the minimum price movement worth recording. Standard approaches include:

Fixed box sizes:

Percentage-based boxes: Some traders use 1-2% of stock price (a $100 stock would use $1-$2 boxes).

ATR-based boxes: Setting box size equal to 1x Average True Range matches volatility to filtering.

The point is: Larger box sizes filter more noise but may miss shorter-term patterns. Smaller boxes capture more detail but produce more signals (including false ones).

Worked Example: Effect of Box Size

Stock XYZ trades between $48 and $52 over two weeks with the following daily closes: $48, $49, $49.50, $50, $49, $48.50, $50, $51, $50.50, $52

With $1 box size: The chart records moves from $48 → $49 → $50 → $49 → $48 → $50 → $51 → $52. Multiple reversals and column changes.

With $2 box size: Only $48 → $50 → $48 → $50 → $52 is recorded. Fewer columns, cleaner trend.

Why this matters: The same price action produces different patterns depending on box size. There is no universally "correct" box size—it depends on your trading timeframe.

Reversal Amount: Determining Column Changes

The reversal amount specifies how many boxes of opposite movement trigger a new column. The standard is 3-box reversal.

How it works:

1. In a rising column (X's), you add X's for each box price rises
2. You only switch to a new column of O's when price falls by the reversal amount (3 boxes)
3. The same logic applies in reverse for falling columns

Worked Example: 3-Box Reversal Construction

Settings: $1 box size, 3-box reversal Starting price: $50

Price sequence: $51, $52, $53, $52.50, $53, $54, $51, $50, $52

Column 1 (X's starting at $50):

• $51: Add X at $51
• $52: Add X at $52
• $53: Add X at $53
• $52.50: No action (less than $3 reversal)
• $53: No action (already have X at $53)
• $54: Add X at $54
• $51: This is a $3 drop from $54—triggers new column

Column 2 (O's starting at $53):

• $51: Add O's at $53, $52, $51
• $50: Add O at $50
• $52: No action (less than $3 reversal from $50)

What the data confirms: The 3-box reversal filter requires meaningful counter-moves before changing columns. Minor pullbacks within trends don't create new columns—only substantive reversals do.

Reading P&F Patterns: Key Formations

P&F charts generate recognizable patterns with defined breakout levels:

Double Top (Bullish Breakout): Two columns of X's reach the same high, then a third column exceeds that level.

    X
X   X X
X O X O X ← Breakout buy signal
X O X O
X O

Double Bottom (Bearish Breakdown): Two columns of O's reach the same low, then a third column breaks below.

Triple Top/Bottom: Three tests of a level before breakout/breakdown—considered stronger signals than double patterns.

Bullish/Bearish Catapults: A consolidation pattern followed by a decisive breakout with acceleration.

The practical point: P&F patterns define exact breakout levels. A double top breakout occurs at a specific price (the box above the prior two highs)—no ambiguity about where the signal triggers.

Price Targets: The Vertical Count Method

P&F charts provide objective price targets based on pattern measurements.

Vertical Count Formula:

Price Target = Breakout Price + (Column Height × Box Size × Reversal Amount)

Worked Example: Calculating a Price Target

Pattern: A rising column from $50 to $60 (11 boxes at $1 each) with 3-box reversal. Breakout occurs when price exceeds prior column high at $58.

Calculation:

• Column height: 11 boxes
• Box size: $1
• Reversal amount: 3
• Breakout level: $58

Target = $58 + (11 × $1 × 3) = $58 + $33 = $91

Interpretation: The measured move projection is $91. This doesn't guarantee price reaches $91—it provides a technical objective based on the pattern's size.

Why this matters: The vertical count gives you a defined target to assess risk/reward before entering. If entry at $60 targets $91 with a stop at $55, you're risking $5 to potentially gain $31 (6.2:1 ratio).

Horizontal Count Method (Alternative Target)

For consolidation breakouts, the horizontal count measures the width of the base:

Horizontal Count Formula:

Price Target = Breakout Price + (Number of Columns × Reversal Amount × Box Size)

Worked Example: Horizontal Count

A stock consolidates between $40 and $45 for 8 columns before breaking out at $46. Box size: $1, Reversal: 3

Target = $46 + (8 × 3 × $1) = $46 + $24 = $70

The point is: Wider bases (more columns) produce larger price targets. This reflects the technical principle that longer consolidations precede bigger moves.

Limitations and Risks (What P&F Cannot Tell You)

P&F charts have specific weaknesses:

1. No time dimension: A pattern that takes 6 months looks identical to one that takes 6 days. You cannot assess how long a consolidation lasted or whether momentum is accelerating.

2. Sensitivity to parameters: Different box sizes and reversal amounts produce different signals from identical data. There is no objectively "correct" setting.

3. Gaps not captured: A stock that gaps from $50 to $60 on earnings shows the same P&F marks as one that climbed gradually. The information loss matters.

4. Volume invisible: Standard P&F charts contain no volume data. A breakout on heavy volume looks identical to one on light volume.

5. Subjectivity in pattern recognition: Traders may disagree on whether a formation qualifies as a "triple top" or a "consolidation."

6. Target accuracy varies: Measured move projections work better in trending markets than in choppy conditions. Targets are objectives, not guarantees.

P&F vs. Traditional Charts: When Each Excels

Next Steps

1. Generate a P&F chart for a stock you follow—StockCharts.com offers free P&F charts with adjustable box sizes and reversals
2. Start with standard settings ($1 box, 3-box reversal for $50-$100 stocks) before experimenting with alternatives
3. Identify the current column direction—is the stock in a rising (X) or falling (O) column?
4. Locate the nearest breakout/breakdown level—the box above prior X column highs or below prior O column lows
5. Calculate a price target if a breakout occurs—use vertical count for columns, horizontal count for consolidations

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Related: Support, Resistance, and Trendline Construction | Breakout and Breakdown Confirmation Rules | Seasonality and Cycle Studies