Point‐and‐Figure Charting
or low allows for the plotting of a new continuation box, all subsequent reversals
are ignored, no matter how large the reversal may be within the period or interval.
The high/low method does not account for significant reversals within the period
of observation once a continuation box is plotted.
Unfortunately, the closing price approach is no better, as it only plots the num-
ber of continuation boxes that satisfy the minimum box‐size requirements with
respect to the final closing price, regardless of how high or low prices have moved
within the period of observation. The closing price method does not account for
significant continuations in price within the period of observation, especially if it
closes near or just beyond the previous continuation box.
Since the plotting of new continuation or reversal boxes is totally dependent
on achieving a minimum move in price, it is important to note that Point‐and‐
Figure charts do not account for:■ (^) Price gapping
■ (^) Periods of inactivity in the markets, which include weekends and holidays
box scaling
Some practitioners scale box sizes with respect to the level of price. They use
smaller box sizes at lower prices and gradually increase the size of the box as
prices increase. For example, they may use a box size of say $0.25 for stock prices
$5 and below and $0.50 for prices between $5 and $20, and so on. The purpose
for such an approach is to help visualize prices in a more balanced fashion, by
expanding the box action at lower prices and compressing box action at higher
prices. Employing large box sizes of say $10 would filter out virtually all price ac-
tion on stocks below $10, let alone penny stocks.
Unfortunately, this approach may cause distortions when using dynamic over-
lay indicators such as trendlines, channels, chart patterns, and so on. Drawing
trendlines based on inflection points at different box scales will result in inconsis-
tent trendlines. It is for this reason that many Point‐and‐Figure practitioners have
abandoned box scaling, preferring a single box size that applies across the entire
range of price.
arithmetic versus Logarithmic scaling
Arithmetic scaling represents box action in a linear manner on a Point‐and‐Figure
chart, whereas logarithmic or ratio scaling provides for a non‐linear representa-
tion of box action. Logarithmic scaling, just like box scaling, expands price action
at lower prices and compresses it at higher prices. Logarithmic scaling achieves
the same objective as box scaling without the element of arbitrariness that accom-
panies box scaling. Box scales may be set differently from one practitioner to the
next, but logarithmic scaling has only one scale, albeit non‐linear. Hence it is more
objective as well as consistent in its application.
Nevertheless, one must exercise caution when drawing trendlines using loga-
rithmic charts, as uptrend lines tend to be violated much sooner and downtrend
lines much later, when compared to the same trendlines drawn on arithmetic charts.