THE HAndbook oF TEcHnIcAl AnAlysIs
analyzing relative strength using point-
and-Figure Charts
Point‐and‐Figure charts are also a popular way to view relative strength between
different markets. In Figure 15.49, we see the gold to silver ratio portrayed on a
three‐box reversal chart based with a box size of one ATR. We observe a long tail
down pattern followed by a reversal, which may be an early indication that gold
is starting to outperform silver after significantly underperforming silver.
15.5 Chapter Summary
As we have seen, Point and Figure charting offers an alternative view of market
action, largely based on the forces of supply and demand. It is, in a very real sense,
pure price action analysis, as time and volume are not fully explicit in the charts.
We have also seen that by employing a suitable box size, we are able to filter out
the appropriate amount of market volatility, thereby allowing for a clearer identi-
fication of the predominant market trend.
Chapter 15 Review Questions
- Explain how boxes are plotted in Point‐and‐Figure charts.
- How many ways are available to the Point‐and‐Figure chartist to filter out
market noise?
- Explain how vertical counts are calculated.
- Describe how you would trade a Bullish Pattern Reversed.
- Explain how trendlines are drawn on Point‐and‐Figure charts.
Figure 15.49 S&P 500 Gold to Silver Ratio with a Long Tail Down Pattern.
Courtesy of Stockcharts.com
