Point‐and‐Figure Charting
Figure 15.7 Comparing Reversal Sizes on a Point‐and‐Figure Chart of iShares
Barclays 20+ Year Treasury Bond Fund.
Courtesy of Stockcharts.comprice sensitivity: box size and reversal box amount
The sensitivity of a Point‐and‐Figure chart depends on its box size and reversal
box amount. Larger box sizes require more movement in price before a box
may be plotted. Increasing the box size filters out more price action, making the
charts reflect only the larger movements in price. Similarly, larger reversal box
amounts require more movement in price before a reversal may be plotted, in
the process filtering out all extraneous market noise below the minimum rever-
sal amount. Selecting the most appropriate box size and reversal box amount
is largely dependent on market volatility and the objective of the analysis. See
Figure 15.7.
We observe in the chart above that as the reversal size increases, the amount of
detail in box action reduces significantly, becoming less sensitive to smaller price
movements and general market noise.Filtering box sizes: Closing versus high/Low prices
The construction of a box depends on how the fixed‐unit move is determined. If
price is used as a measure for box size, the size of the box will then depend on
whether closing prices or the period’s high and low prices are used in its deter-
mination. If closing prices are used, then the box size will ignore all intervening
prices, using only the final closing price to determine if prices have indeed tra-
versed the necessary minimum amount to allow for the plotting of a new box.