Point and Figure Metatrader Indicator
Point and Figure Advantages
1. P&F charts send only clear buy or sell signals without any dual nature.
2. P&F charts take into account only “important” price changes and filter out market noise. This being said, the “importance” of changes is set by a trader.
3. P&F charts are not affected by time effect, which sometimes introduces additional element of uncertainty on general charts.
4. P&F charts allow to identify support and resistance levels, and also trend lines.
5. P&F charts are very intelligible.
Point and Figure Disadvantages
1. P&F charts send clear signals only for medium-term and long-term periods and are almost not intended for short-term trade.
Building Point and Figure Charts
The majority of the most popular charts, used for technical analysis, are built in accordance with opening price, closing price, maximum or minimum for a definite period. Only closing price for a period is used for building Point and Figure charts.
Point and Figure charts consist of X and O columns, which reflect the filtered price changes. Increase in prices is shown by “X” boxes, and drop in prices is shown by “O” boxes. New boxes are created only in case of price change by the size of a box or more in one of directions.
As a result, each chart has a setting called “box size” – conventional unit of price movement direction, which is shown on a chart. Box size is an amount of pips, on which price should move above the current X box (or below the current O box) for a new Х (or О) box to be created and added to the chart. For example, if price increased by three conventional box sizes, it will be displayed on a chart like three X boxes.
If there is a reverse of price movement, a new column of O boxes will be displayed on a chart. This being said, X and О boxes never appear in one and the same column.
Besides, each chart has a setting called “reversal threshold”, which defines the amount of pips, necessary for a new column to be created and a chart to start moving in the opposite direction (downwards, if a previous column was the column of Xs, or upwards, if a previous column was the column of Os). When a reversal threshold is crossed by price, a new column, which moves in the opposite direction, will be created next to a previous column.
Thereby, if securities move, for example, in ascending trend, a chart will show the growing column of Xs until these securities move downwards for a distance more that a reversal threshold (as a rule, several boxes represent a reversal threshold, for example, 3 boxes). The same situation occurs in case of appearance of a column of Os.
It is necessary to remember two important specific points:
1. There is no linear time scale on Point-and-figure charts, so each column can represent several minutes or several days depending on price movement patterns.
2. There is no definite price value in a box on Point-and-figure charts. On the contrary, a certain range of price values is displayed, which is situated within the limits of the box size.
Point and Figure Charts Signals
- Reversal pattern signals
Appearance of a new column of Os is a signal to sell.
Appearance of a new column of Xs is a signal to buy.
- Support and resistance levels
Support and resistance levels are always horizontal lines because of specifics of Point and Figure charts. Support level appears on Point and Figure charts if there is a row of successive O columns, which minima are situated on a level. Resistance level appears on Point and Figure charts if there is a row of successive X columns, which maxima are situated on a level.
You should remember that the XO chart doesn’t point to a specific level, but to a support zone (equal in size to the box size), because arrangement of minima of several successive O columns on a level doesn’t mean that prices have stopped exactly on this level, but indicates that prices simply haven’t passed below more than one box. The same is true of resistance levels.
- Trend lines
Support and resistance levels are always lines with 45-degree slope because of specifics of Point and Figure charts.
It should be noted that in most cases the current position of a trend line on a Point and Figure chart is not match the position of the same line on a bar and candle chart in point of price. There are two reasons: firstly, Point and Figure chart doesn’t reflect the real minima and maxima of the market, but only points to their position in the diapason of a box; secondly, time scale is non-linear.
http://iticsoftware.com © 2011
This entry was posted on Wednesday, June 1st, 2011 at 9:47 am and is filed under forex indicator, metatrader indicator. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.
