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, 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 toward 1.1750 as US Dollar loses strength
EUR/USD returned to the 1.1750 price zone in the American session on Friday, despite falling Wall Street, which indicates risk aversion. Trading conditions remain thin following the New Year holiday and ahead of the weekend, with the focus shifting to US employment and European data scheduled for next week.
GBP/USD nears 1.3500, holds within familiar levels
After testing 1.3400 on the last day of 2025, GBP/USD managed to stage a rebound. Nevertheless, the pair finds it difficult to gather momentum and trades with modest intraday gains at around 1.3490 as market participants remain in holiday mood.
USD/JPY advances to near 157.00 on BoJ's cautious tightening
The USD/JPY pair trades in positive territory for the fourth consecutive day around 157.00 during the early European session on Friday. The cautious pace of the Bank of Japan’s (BoJ) monetary tightening weighs on the Japanese Yen (JPY) against the Greenback. Traders will take more cues from the US Nonfarm Payrolls (NFP) report for December, which is due next week.
Editors’ Picks
EUR/USD bounces toward 1.1750 as US Dollar loses strength
EUR/USD returned to the 1.1750 price zone in the American session on Friday, despite falling Wall Street, which indicates risk aversion. Trading conditions remain thin following the New Year holiday and ahead of the weekend, with the focus shifting to US employment and European data scheduled for next week.
GBP/USD nears 1.3500, holds within familiar levels
After testing 1.3400 on the last day of 2025, GBP/USD managed to stage a rebound. Nevertheless, the pair finds it difficult to gather momentum and trades with modest intraday gains at around 1.3490 as market participants remain in holiday mood.
Gold trims intraday gains, approaches $4,300
Gold retreated sharply from the $4,400 area and trades flat for the day in the $4,320 price zone. Choppy trading conditions exacerbated the intraday decline, although XAU/USD bearish case is out of the picture, considering growing expectations for a dovish Fed and persistent geopolitical tensions.
Cardano gains early New Year momentum, bulls target falling wedge breakout
Cardano kicks off the New Year on a positive note and is extending gains, trading above $0.36 at the time of writing on Friday. Improving on-chain and derivatives data point to growing bullish interest, while the technical outlook keeps an upside breakout in focus.
Economic outlook 2026-2027 in advanced countries: Solidity test
After a year marked by global economic resilience and ending on a note of optimism, 2026 looks promising and could be a year of solid economic performance. In our baseline scenario, we expect most of the supportive factors at work in 2025 to continue to play a role in 2026.
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