This article written by Thomas Kaschel was originally published in the October 2011 issue of Traders' Magazine.

  • Mr Thomas Kaschel is the holder of a CIIA (Certified International Investment Ana- lyst) and an MFTA (Master of Financial Technical Analysis). Until 2009, he was an asset manager at a savings bank and in this position respon- sible for developing trading strategies and optimising portfolios as part of asset allocation. Since 2010, he has been an independent trader and part-time lecturer at uni- versities teaching courses related to banking and capi- tal-market issues.

The point & figure charting technique has its origins in the late 19th century. By now, however, it has wrongly been forgotten by many traders. “New” types of charts like candlestick or Renko charts are “in”. The series starting with this article is intended to show how point & figure charts still offer benefits today and may, for example, represent the basis of a trend-following trading system. The first part will deal with the basics and the construction of the charts.

At first sight, Point & Figure (P&F) charts appear to be unusual. Price development is shown in columns that are alternately stacked with the letters X and O. At the same time it should be noted that there is no explicit time axis. While modern P&F charts do indicate years, this is only done for orientation purposes. All this comes across as being rather exotic to the modern technical analyst. Although computers nowadays are taking over the preparation of the charts, it does make sense in light of the significant differences compared to other types of charts to first take a closer look at the construction of the P&F chart.

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