The representation of the price according to the chart said in Points and Figures is a very old representation that differs from traditional charts because it does not refer to time in the same way.
The specificities of technical analysis with a graphical "Points & Figures" from other types of representation are:
1. The graph does not take into account the temporal dimension of the evolution of prices
2. Prices are studied by ranges of variation (in monetary units or percentage), which mitigates the minor fluctuations
Method of calculation
The vertical axis represents a price change expressed in monetary units or percentage. This axis has the particularity to evolve by "boxes" (or "boxes"). This "box" are measuring scale changes of price. The horizontal axis corresponds to reversals made during trading days. To have a correct reversal and thus the actual progress of a unit on the horizontal axis, a "threshold inversion" must be reached.
This "threshold inversion" corresponds to a number of "boxes" to take into account the change in trend. The threshold inversion "can be 2, 3 or 4" box (or more).
The columns of the chart are filled by sign X or O.
• The cross X symbol increases, appears in columns upward,
• The circle O, decreases symbol appears in columns downward.
Graphics in "Points and Figures" allow to decompose fluctuations in major phases of increases and decreases by eliminating intermediate peaks. The setting of the "box" and "threshold inversion" allow to define the accuracy of detection. Higher of the bullish columns that are on a straight line form a line of resistance. Conversely, lower of bearish columns that are on a straight line form a support line.
According to analysts, Buy signals are given in the following configurations:
• Appearance of a cross above the top of the previous upward column
• A new higher is overrun after having broken a line of resistance,
• On crossing of the line of resistance of the triangle that has been formed,
• On crossing on the rise the resistance line of a downtrend channel that has formed.
and sell signals are given in the following configurations:
• Emergence of a circle below the bottom of the previous downward column
• A new lower is overrun after having broken a line of support,
• On crossing of the support line of the triangle that has been formed,
• On crossing on the fall the support line of a bullish channel that has formed.
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