How to Read a Point and Figure Chart
To read a point and figure chart, understand that one column of rising marks continues while price advances, and a new column begins only when price reverses by a stated multiple of the box size. Time is not on the horizontal axis at all.
A point and figure chart is columns of marks. One column fills upward while price advances, and a new column starts only when price reverses by a set amount. Time does not appear anywhere, which removes a great deal of noise and a great deal of information with it.
Before you start
A box size and a reversal amount, because those two numbers are the entire configuration. Everything the chart shows follows from them.
An understanding that time is absent from the horizontal axis. A quiet month occupies no space at all; an active hour can occupy several columns.
An acceptance that small moves are discarded by design. Anything below the box size never appears, which is the filtering the chart exists to do.
The steps
1. Set the box size from the instrument’s range
On this site’s shared series the median bar range is 0.493 and the fourteen-period average true range has a median of 0.5994. A box around that scale filters noise without erasing structure.
2. Set the reversal amount
Three boxes is the conventional choice. It means price has to reverse by three times the box size before a new column begins, which is what discards ordinary counter-movement.
3. Read a column as an uninterrupted move
A tall column means price advanced that far without reversing by the reversal amount. How long that took is not shown and is not part of what the chart claims.
4. Read horizontal width as congestion
A run of short alternating columns means price moved back and forth within a band. That congestion is the pattern the chart is genuinely good at making visible.
5. Draw trend lines at forty-five degrees
The traditional method uses diagonals at a fixed angle from a significant column, rather than lines fitted to points. Whether that is meaningful or arbitrary is a real question, and it is the convention.
6. Take levels from a price chart
Column boundaries land on multiples of the box size. Those are thresholds rather than prices anybody defended, so stops and targets belong on a chart with real prices on it.
7. Keep the parameters fixed
Changing the box size or the reversal redraws everything back to the beginning. A messy chart becomes a clean one with one adjustment, which is fitting rather than tuning.
How to tell it worked
Box size was derived from a measured range, not from a round number.
The parameters have been changed 0 times since the chart was configured.
0 orders were placed at a column boundary, all levels coming from a price chart.
And the chart is used for congestion rather than timing, which it cannot show.
What removing time costs
Every scheduled thing becomes invisible. Sessions, releases, expiries and the close have no representation on a chart with no time axis.
And pace disappears. A move that took two days and one that took two years look identical, which matters enormously for holding periods and for anything with a financing cost.
Against the modern equivalents
Renko bricks print on movement in one direction and reverse on a set amount too, which makes the two close relatives. The main difference is that this one places marks within a column rather than stepping diagonally.
Both discard time, both need a size parameter, and both flatter whichever history the parameter was chosen on. The choice between them is largely presentational.
What this one does distinctively is make horizontal congestion legible. A long sideways period occupies many narrow columns side by side, which is visually clearer here than on almost any other chart type — and that is the honest case for using it at all.
Where the two parameters come from
The box size sets the resolution. Too small and every ordinary wiggle prints a mark, which defeats the filtering the chart exists for. Too large and a month of genuine movement produces two marks and shows nothing.
The reversal amount sets how much counter-movement is tolerated before a new column starts. Three boxes is the convention, and a smaller number produces a chart that changes direction constantly while a larger one holds columns through moves you would want to see.
Derive the box from the instrument and leave the reversal at the convention. That gives one parameter to think about rather than two, and the conventional reversal has the same self-fulfilling property that standard indicator settings do.
Then test it on data you did not choose it from. Any pair of values can be made to produce an orderly-looking chart over a selected stretch, which is the fitting problem every parameter on every chart type carries.
The original data
Of the 24,971 unique videos in research/search-study-corpus.jsonl, 0 mention this chart type in the
title. Renko charts appear in 72 at a median of 5,347 and Heikin Ashi in 52 at 33,639. The counts come
from site/corpus_count.py.
0 videos on the oldest charting method still in use. The two modern noise-filtering chart types have 124 between them; the one they descend from has none, which is a reasonable indication of where attention goes.
The answer to the question on that chart is that alternating columns mean price is going nowhere. The chart is reporting congestion accurately — and a larger box would hide it, which is removing the information rather than improving the display.
When it fails
The failure is tuning the box size until the history looks clean, and it is unusually tempting here. One parameter change redraws the entire chart, so a messy period becomes an orderly sequence of long columns in a single adjustment. That feels like finding the right setting. What has happened is that a value was chosen because it flattered the data it was chosen on, and the next stretch of market will look messy again at exactly that value.
The second failure is reading duration into it. There is no time axis.
A third is placing orders at column boundaries. They are box multiples.
A fourth is using it for timing. It cannot represent when anything happened.
A fifth is a round-number box size. It should come from the instrument.
And a sixth is expecting it to show a gap. A gap fills several boxes and looks like a move.
Related
Renko charts is the closest modern equivalent. Tick charts is the other common way of removing time from the axis. And chart reading covers what a conventional price chart shows that this does not.
It is the oldest of the noise-filtering charts and the one that discards the most. That is genuinely useful when the question is where price has spent time rather than what it did last Tuesday — and completely unsuitable when timing matters at all.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.