THE HAndbook oF TEcHnIcAl AnAlysIsvolatility‐based box sizing
The box size may adopt any of the following measures:■ (^) Fixed box price
■ (^) Fixed box percentage
■ (^) Fixed box average true range (ATR)
In most cases, the fixed box price is the preferred choice of measure. But
as can be seen in Figure 15.9, using the volatility measure has its advantages.
By selecting the box size to be one unit of volatility, we essentially filter out a
significant amount of market noise, making trends more visible. We observe in
Figure 15.9 that the price action is much less volatile when a volatility filter is
applied.
15.2 Basic Point‐and‐Figure Chart Patterns
We will now turn our attention to some popular Point‐and‐Figure chart patterns.
Most patterns discussed in this section will be based on three‐box reversals, unless
stated otherwise. We will begin with the most fundamental of all formations, the
Double Top and Bottom pattern.double top and bottom Formations
These represent the most basic bullish and bearish signals in Point‐and‐Figure
charting. They also represent the most fundamental buy and sell triggers. Once
price exceeds the previous X and a new X is plotted, a buy signal is issued.Figure 15.9 Comparing Fixed ATR versus Fixed Box Price on a Point‐and‐Figure
Chart of Apple Inc.
Courtesy of Stockcharts.com