The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

Point‐and‐Figure Charting

As before, prices rose from $20 to $25 and five new continuation boxes are

plotted as a column of rising Xs. Prices subsequently fell from $25 to $24. But since

this is a two‐box reversal chart, no reversal box is plotted until prices fall to at least

$25 − $2 = $23. Price eventually declines to $23 and two boxes are finally plotted in

the next column, filling both the $24 and $23 spaces with falling Os. Price continues

to fall to $22 and a new continuation box is plotted at $22 with another O, as seen

in column 2. Price then reverses back to the upside and no box is plotted until prices

reach $22 + $2 = $24, where two new Xs are plotted in the next column, filling in

the $23 and $24 spaces, as seen in column 3. From $24, prices fell back down to

$23, but this does not satisfy the two‐box reversal criteria, and hence no reversal

box is plotted until price reaches at least $24 − $2 = $22, upon which two falling

Os would be plotted, as seen in column 4. Two new continuation boxes are plotted

as prices continue to decline another $2 to $20. Finally, price reverses again to the

upside, where two new reversal boxes are only plotted once price reaches $20 + $2

= $22. Prices continue to rise from $22 to $25, where three new continuation boxes

are plotted as a column of rising Xs, as seen in column 5.

We therefore observe that it only took five columns to plot the same price path

using a two‐box chart, instead of eight columns as seen on the one‐box reversal

chart in Figure 15.3. We may therefore conclude that consolidations plotted on

a one‐box reversal chart will take up many more columns than on a two‐ or

three‐box reversal chart.

(3) three‐box reversal Charts We will now repeat the same procedure again

by plotting the same price path as found in Figure 15.3, but this time on a three‐

box reversal chart. See Figure 15.5.

As before, prices rose from $20 to $25 and five new continuation boxes are

plotted as a column of rising Xs. Prices subsequently fell from $25 to $24. But

Figure 15.5 Three‐Box Reversal Chart.