Point and Figure Charting: A Classic Technical Approach

Point and Figure (P&F) charting is a timeless technical analysis method that focuses purely on price movement, ignoring time and volume. By plotting columns of Xs and Os to represent rising and falling prices, P&F charts help traders identify clear trends, support/resistance levels, and breakout signals. On platforms like XM, this approach offers a structured way to remove noise and trade with confidence.

Modern charts can overwhelm information, but Point and Figure simplifies everything down to price action. Let’s explore how this classic method still works powerfully on XM today.

What Is Point and Figure Charting in Technical Analysis?

Point and Figure (P&F) charting is a price focused charting technique that visualizes market trends using Xs (for rising prices) and Os (for falling prices), completely ignoring time and volume. This method emphasizes pure price movement and eliminates minor fluctuations, making it a tool for identifying clear support/resistance levels and breakout signals.

Unlike time-based charts (like candlesticks), P&F charts only update when price moves by a set value, helping traders filter noise and focus on trend direction.

How does Point and Figure charting differ from traditional price charts?

The key differences between Point and Figure charts and traditional price charts (e.g., candlestick or bar charts) include:

No time axis: P&F charts record only significant price changes, not when they occur. Time is not linear.
Box size and reversal: Traders set a box size (e.g., $1 move) and a reversal criterion (e.g., 3 boxes) to define meaningful trends.
Symbolic representation: Rising prices are marked with Xs, falling prices with Os, forming columns based on direction.
Noise elimination: Minor price movements that don’t meet the criteria are excluded.

This structure provides clarity in trend detection and eliminates emotional bias introduced by short-term volatility.

What is the historical origin of Point and Figure charts?

The P&F method dates back to the early 20th century, though its conceptual roots are older:

Charles Dow is believed to have used primitive forms of P&F charting in the late 1800s for tracking price behavior.
The formal system was popularized by Victor DeVilliers and Owen Taylor in their book “Point and Figure Charting” (1933), which established standardized rules for box size and reversal.
Later, Thomas J. Dorsey revitalized the method in modern finance with “Point & Figure Charting” (1995), bringing it into institutional use.

Despite being less common today, P&F remains a respected method in long-term technical analysis.

Why do some traders prefer Point and Figure over candlestick charts?

Traders who prefer P&F charts cite several advantages:

Clarity in trend direction: P&F charts filter out small fluctuations, making support/resistance zones and trend lines easier to see.
Better breakout visibility: Breakout patterns such as double tops or triple bottoms are often cleaner in P&F than in time-based charts.
No time pressure: Since the chart only updates on meaningful price changes, traders avoid overreacting to intraday noise.
Quantitative precision: Box size and reversal thresholds allow rule based strategy design, often used in algorithmic systems.

A comparative study by the University of London (2017) found that P&F based strategies produced fewer false breakouts than candlestick methods in ranging markets, making them valuable for systematic traders. Before applying these strategies, traders should review the Terms & Conditions XM to understand execution policies and trading requirements.

What Are the Core Components of a Point and Figure Chart?

A Point and Figure (P&F) chart is built on four core components: Xs, Os, box size, and reversal amount. Together, these define how price movements are filtered and displayed. Unlike time-based charts, the structure of a P&F chart is purely price-driven, focusing on significant market moves while omitting time and volume.

What do the Xs and Os represent in P&F charts?

Xs represent rising prices and are plotted in a column when the price moves upward by a predefined amount (box size).
Os represent falling prices and are plotted in a new column when the price reverses downward by a specified reversal amount.
Each column contains only Xs or only Os, never both.

This binary structure filters out insignificant price changes and emphasizes clear directional trends.

How is box size defined and customized?

The box size determines the minimum price change required to plot a new X or O. There are three ways to define it:

Fixed box size: e.g., 1 point per box — often be used in short-term charts.
Percentage-based box size: e.g., 1% of the current price — useful in volatile markets or long-term charts.
ATR-based scaling: Dynamically adjusts box size based on Average True Range, helping account for changing volatility.

Choosing the right box size is critical: smaller box sizes reveal more detail but can introduce noise; larger sizes highlight major trends but reduce sensitivity. Dorsey (2007) recommends percentage scaling for stocks above $20.

What is the reversal amount and how does it affect the chart?

The reversal amount defines how much price must move in the opposite direction before a new column is created. It controls the sensitivity of trend changes.

A common reversal setting is 3 boxes, meaning the price must move three times the box size in the opposite direction to warrant a new column.
Smaller reversals (e.g., 1-box) create highly detailed charts but may show too much noise.
Larger reversals (e.g., 3 or 5-box) are better for spotting long-term trends and reducing false signals.

According to a 2019 study by the NYU Department of Financial Engineering, 3-box reversals offered the best balance between early trend detection and false breakout avoidance in equity markets.

How Are Trends Identified Using Point and Figure Charts?

Point and Figure charts identify trends by focusing purely on price direction and magnitude, using columns of Xs and Os to reveal trend strength and structure. Unlike traditional charts, P&F removes time as a factor, allowing traders to view trend formation, breakouts, and reversals with greater clarity. The chart’s design naturally filters out insignificant price movement, sharpening trend visibility.

What is the role of support and resistance levels in P&F charts?

Support and resistance levels are foundational in P&F trend analysis:

Support: Repeated troughs in O-columns form horizontal zones where price refuses to fall lower.
Resistance: Repeated peaks in X-columns define levels where price consistently fails to rise.
Breakouts above resistance (e.g., Double Top Breakout) or below support (Triple Bottom Breakdown) signal trend initiation or continuation.

Because P&F uses consistent scaling, these levels are clear, rule based, and visually distinct, making them easier to trade than those on time based charts.

How does P&F charting eliminate noise from the market?

P&F charts filter market noise by ignoring:

Time intervals (e.g., minutes, hours, days),
Minor fluctuations that don’t meet the box size and reversal criteria.

As a result:

Only meaningful price action is recorded.
Random intraday volatility, which often triggers false signals in doji candlestick or line charts, is omitted.

A 2020 study by the London School of Economics’ Quantitative Finance Unit showed that P&F-based signals reduced false breakout frequency by over 30% in ranging markets compared to time-based charts.

Can P&F charts predict trend reversals more clearly than line/candle charts?

In many cases, yes. While no chart type predicts perfectly, P&F charts can signal reversals more clearly due to:

Clean breakout patterns: Double/triple tops and bottoms stand out.
Absence of time pressure: Traders can focus solely on price structure.
Pattern confirmation: Breakouts occur only after set reversal criteria are met.

According to research by the CFA Institute (2021), P&F reversal patterns, when used with a 3-box reversal and volume overlay, had a 68% success rate in anticipating medium-term trend changes outperforming line and basic candlestick methods under similar conditions.

What Are the Key Patterns in Point and Figure Charting?

Point and Figure (P&F) charts use Xs and Os to form distinct price patterns that signal potential breakouts or breakdowns. The most recognized patterns include double tops, triple bottoms, and advanced setups like catapults or triangles. Unlike time-based charts, these patterns are purely price driven, making them effective for rule-based trading systems.

What is a Double Top Breakout in P&F?

The Double Top Breakout is a bullish pattern formed when two columns of Xs reach the same price level, followed by a new column of Xs that breaks above that level. This signals:

Renewed buying strength
Break of resistance
Potential start of an uptrend

Conditions for confirmation typically include:

A 3-box reversal method
Volume or relative strength confirmation (if used alongside P&F)

According to Dorsey (1995), this is one of the most reliable bullish patterns in P&F charting, especially on daily charts.

What is a Triple Bottom Breakdown signal weakness?

The Triple Bottom Breakdown is a bearish pattern formed when three columns of Os reach the same support level, and the fourth column of Os breaks below it. This reflects:

Sustained selling pressure
Failure of support
Confirmation of downtrend initiation

This pattern is often stronger than a single or double breakdown due to repeated failed attempts at support. Murphy (1999) notes its effectiveness in bear market environments or following distribution phases.

Are there complex formations like triangles or catapults in P&F?

Yes. Although Point and Figure charts are simplified, they still form advanced patterns that require more nuanced interpretation:

Bullish Catapult: A sequence combining a double top breakout, followed by a pullback (O column) that holds above the breakout level, and a subsequent breakout. It suggests continuation with stronger conviction.
Bearish Catapult: The opposite setup, indicating sustained bearish momentum trading.
Triangles: Rare in P&F but possible. They appear when X and O columns alternate around a narrowing range, usually before a breakout.

These formations are discussed in Dorsey’s Point & Figure Charting (3rd Ed., 2007), and are often used by institutional traders for pattern based automation.

Point and Figure charts provide a clean, rule-based structure that eliminates emotional bias and chart clutter. Their ability to highlight patterns like breakouts and trend reversals makes them especially useful for disciplined traders. When applied to XM alongside traditional tools, P&F charting adds depth to your strategy and helps sharpen your market perspective. To better understand this technique and others, visit XM’s Learn Trading section for structured educational resources.

Lina Vexley

Lina Vexley is a forex education specialist with a passion for guiding new traders. She offers step-by-step lessons on MetaTrader and risk control, making XM accessible and practical for traders of all experience levels. Email: [email protected]