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Point and figure chart was designed for short- and middle-term type of trading on the forex market. Price of the Forex contract is rendered by "X" columns - (tell about growth of price) or "0" columns (decline). If price moves up (for example, for 10 points), cross is added to the table. If price falls by a certain number of points, nought is entered.
Representation of the Point and figure chart is hard to combine with data on trading volume, because “X”s and “0”s are summed for entire price changing period rather than for a certain chart time.
Building Point and figure chart
On the "Point and figure" chart each movement of the price is not indicated. Changes will be seen if the price breaks up defined discreet value (for ex., 10 points). Prior to building chart, below parameters should be taken into account:
- Box size – number of points of price change or discreet value. Should the price move up (for example, for 10 points), “X” is added and should the price move down, “0” is entered
- Reversal – the size of opposite change of price, upon which “Х” changes “О” and vice-verse (for example, 4, that is 40 points when threshold amounts to 10 points)
When over a certain period of time, the price moves in a certain direction, all that changes are entered as crosses or noughts. When the price moves, for example, upwards, and passes one more threshold in 10 points, a new cross is added to the table. Quite the opposite order works for noughts. Data about change are structured as columns with noughts.
When price reverses and passes a certain threshold value (indicated in reversal parameters), then it is time to stop forming table of one type and switch to forming another. It can start from entering several Xs or Os at once (if reversal exceeds 2)
Rendering the price in the form of this type of forex chart is not tied to time scale. Therefore, adjustment of many approaches to classical technical analysis is required. X”s and “0”s are convenient tools for rendering levels, around which the price stops for long (consolidation level)
This chart shows generalized (averaged) data:
- The movement against trend is not rendered when it is less than value of reversal
- The volume traded at stock exchange is summed for entire column and is not tied to a certain time period
In case threshold amount and reversal parameters are changed, the extent of chart averaging shall be adjusted.
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