12.1

📐 Fundamentals

What Point & Figure is, how box size and reversal amount are chosen, and when P&F beats candlestick charts

1. What Is Point & Figure — History

Point-&-Figure-Charts date back to the 19th century. The earliest records appear with Charles Dow and his contemporaries on Wall Street, who at the time recorded price movements in columns of "X" and "O" on graph paper — without dates, without a time axis, just price.

Later, Victor De Villiers (1933) and A.W. Cohen (1947) systematized the method. Tom Dorsey spread it internationally from the 1990s onward, primarily through his work with Bullish Percent Indices. Today P&F is a niche instrument — but precisely because so few know it, it generates signals that are difficult to see in candlestick charts.

2. Box Size: Absolute vs. ATR-Based

The box size determines how large a price move must be to generate an X or O. A box size of $1 means: only when the price rises by $1 is a new X drawn.

MethodAdvantageExample
AbsoluteSimple, stable$1 box for stocks between $50–$150
%-basedScales with price1% box: at $100 = $1 box, at $200 = $2 box
ATR-basedAdapts to current volatility1× ATR(14) as box size — recommended for beginners

Rule of thumb for beginners: 1× ATR(14) as box size, reversal 3 boxes. This is the default setting in most charting tools (TradingView: Indicators → "Point & Figure").

3. Reversal Amount

The reversal amount determines how many boxes the price must move in the opposite direction to start a new column. The default value is 3 boxes.

Example with box size $1 and reversal 3: If the price is in an X column (upward), it must fall by $3 to start a new O column. A drop of $2 is not enough.

ReversalEffectApplication
1–2 boxesVery sensitive, many signalsShort-term trading, intraday
3 boxes (default)BalancedSwing trading, medium-term
5+ boxesFew signals, strong trendsPosition trading, long-term

4. P&F vs. Candlestick Chart — When to Use Which?

SituationBetter: P&FBetter: Candlestick
Determining trend directionYes — no time-axis distortion
Calculating price targetsYes — counting methods
Measuring market breadth (BPI)Yes — P&F signals as foundation
Fine-tuning short-term entriesYes — candlestick patterns, volume
Sentiment + volume signalsYes — shadows, doji, volume bars
Intraday analysisYes — P&F needs sufficient movement

Best practice: P&F for strategic assessment (trend, price target, market breadth), candlestick chart for tactical entry.