Point and figure trends and trendlines
Point and Figure trend lines are very simple to draw. In fact they can even be drawn automatically. The problem with identifying trends in stocks, forex, futures or commodities is the fact that the chartist needs to use his own judgement. Many stock traders often find themselves drawing trendlines from one pivotal low to another. This is the way they have been taught in numerous books. When the stock again approaches the trendline for a third time, the trader expects the stock to bounce off the trend line. But, all of a sudden, the trend line is no longer respected and the stock trades right through it. The same happens in forex, futures and commodities as well. Any security that is traded publicly and has its price action charted and read by swing traders or day traders will have the same problem. There are many books, too many to count, with different approaches to solving this problem. Some techniques involve using the Close of the candles only, and letting the shadows and wicks of the candles trade through the trend line. Others consider the highs and lows of each candle. Some require the trend line to be drawn through three points. There are many more examples.
The best way to draw a trend line that we have found is the way they are drawn in point and figure method. If you are not familiar with point and figure, you can go to https://www.pointandfigure.com and learn more. The point and figure method, or P&F in short, always draw the trend lines straight diagonally. The point and figure charts are drawn in a grid where every cell is the same size. They look much like a tic-tac-toe game, with Xs and Os, but are obviously much larger. The Point and Figure chartist draws trend lines horizontally or diagonally. Horizontal trend lines for when the stock consolidates and trades sideways in a channel. Or to mark levels of support and resistance where the stock will bounce and start trending in the opposite direction.
The diagonal trendlines in point and figure are drawn immediately after a point and figure buy signal or sell signal has formed in the P&F chart. There can be many different P&F patterns in the chart that provide trading signals for the trader to go long or short. Right after the buy or sell pattern has formed, the trader starts drawing a trend line at 45 degrees. For each new price column that is formed in the chart, the trader adds a new section to the trend line — always at the same angle — 45 degrees. This makes it very easy to do the correct way. It is in fact almost impossible to do wrong. That is why we find the point and figure method an easy trading strategy suitable for beginners. There is never any need for the trader to use his own judgement. Often it takes decades of practice before a trader has developed such good judgement that he can draw correct trend lines in a stock chart. But with point and figure, even a complete beginner can draw 100% correct trend lines. Because they are always drawn in the same simple way.
Trends in a point and figure chart can be divided into short term trends and long term trends. The short term trends are even easier to sport that long term trends. The short term trends are simply plotted in the point and figure chart as either the character X or the character O. X’s are short term uptrends and O’s are short term down trends. When the price movement changes from one direction to another, in other words from an uptrend to a down trend, then the chart plotting is moved to a new column in the grid chart. These successively higher up columns or successively lower down columns form longer term trends. These long term trends are then identified and followed using the Point and figure trend lines. for more info visit: https://www.pointandfigure.com