Brandon Wendell, CMT
Brandon Wendell
When technicians chart using point & figure charts, they are doing so to identify and stay in longer trends. We do not want to be shaken out too early on a trade that could have yielded much more profit. Therefore, we would want to make our signals less sensitive so we have fewer of them or we need to use some sort of filter so that we do not take every trade we happen to see.
We must have a trading plan or system designed around the use of our technical tools. In my previous articles on Point & Figure charting (Part 2), I told you the need for identifying your entry, stop and even projected target for the trade before entering it. Supply and demand levels work the same in point and figure as they do in other styles of charts. Look for an area where trend reversed strongly. Your typical rally-base-drop or drop-base-rally would do just fine. You should look to buy or sell when you receive entry signals in those areas only.
One of the simplest filters is to make sure the trades we take meet the standard 3:1 reward to risk ratio we always follow in our classes. Since we know our entry, our stop and can use supply and demand or even the horizontal or vertical projections for our targets, there is no reason why you cannot take only the trades that offer the greatest potential for success and the lowest risk in relation to it.
The overall trend of price is something we look at to determine whether we should be a buyer or a seller of a stock. Why should it be any different with P&F charts? The difference in drawing the trend lines is that they are traditionally only drawn at 45 degree angles from a low or from a top. You would not connect multiple lows for an uptrend or multiple tops for a downtrend as you would with candles.
We can also limit our risk in trading by only trading with the trend. If you are above an uptrend from a low, you would only look to enter trades when you receive a buy signal. Use the selling signals to exit those longs only. You would not take a sell signal as an invitation to enter a short as it is counter trend and has a lower probability of working. The short positions should only be entered when you have a sell signal when you are trading below a trend line drawn from a high. You would use a buy signal to exit those shorts but not to enter longs.
Breaking a previous column of X’s is a simple signal. So is breaking a previous column of O’s. I showed you some patterns that can be used as more advanced entry signals. There are many others. Some technicians will only enter trades on a complex signal and then exit upon receiving a simple signal. This will also serve to filter out a lot of unnecessary trades.
There are a lot of choices to screen out trades that are marginal. We want to trade smarter, not more. No matter what system you create, be sure that it manages your risk properly and offers you the opportunity to identify and take high probability, low risk trades. There are plenty of them in the markets waiting for you.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD bounces off lows near 1.1600
EUR/USD no gathers some steam and bounces off daily lows near the 1.1600 region. The pair’s daily pullback comes on the back of the firmer tone in the US Dollar amid rising Treasury yields and better-then-expected US data releases from the job market.
GBP/USD remains offered below 1.3300
GBP/USD is coming under renewed pressure, surrendering its earlier gains and retreating toward the area below the key 1.3300 support, always on the back of the bid bias in the Greenback and despite earlier hawkish comments from BoE poliymakers.
USD/JPY remains capped by 156.00 amid renewed USD selling
USD/JPY is consolidating its uptick to near 156.00 in the Asian session on Tuesday. The US Dollar faces renewed selling pressure amid a cautious mood and dovish Fed expectations. Meanwhile, traders assess the potential impact of a strong earthquake in Japan. The immediate focus now is on BoJ Governor Ueda's speech.
Editors’ Picks
EUR/USD bounces off lows near 1.1600
EUR/USD no gathers some steam and bounces off daily lows near the 1.1600 region. The pair’s daily pullback comes on the back of the firmer tone in the US Dollar amid rising Treasury yields and better-then-expected US data releases from the job market.
GBP/USD remains offered below 1.3300
GBP/USD is coming under renewed pressure, surrendering its earlier gains and retreating toward the area below the key 1.3300 support, always on the back of the bid bias in the Greenback and despite earlier hawkish comments from BoE poliymakers.
Gold keeps the bid tone near $4,200
Gold is still holding a positive tone around the $4,200 zone per troy ounce on Tuesday, though it’s starting to lose a bit of steam as the US Dollar finds support from stronger-than-expected jobs data. Even so, markets remain confident the Fed will move ahead with a rate cut on Wednesday, which ultimately lends support to the yellow metal.
Crypto Today: Bitcoin, Ethereum, XRP trade under pressure amid mixed technical signals
Bitcoin is trading above $90,000 at the time of writing on Tuesday amid sticky risk-off sentiment in the broader crypto market. Altcoins, including Ethereum and Ripple, are paring losses, holding above key support levels.
Global economic outlook 2026: Financial system risk, trade, public debt
The global and European economies have been resilient in recent years even accounting for the modest global slowdown of 2025. But risks for the recovery are rising, underscoring a negative medium-run global macro and credit outlook.
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