This article needs additional citations for verification. Point falling wedge chart pattern figure charting does not plot price against time as time-based charts do.
Instead it plots price against changes in direction by plotting a column of Xs as the price rises and a column of Os as the price falls. The technique is over 100 years old. Hoyle” was the first to write about it and showed charts in his 1898 book, The Game in Wall Street. Point and Figure was written by Victor Devilliers in 1933.
Chartcraft Inc, in the USA, popularized the system in the 1940s. Cohen founded Chartcraft and wrote on point and figure charting in 1947. The Definitive Guide to Point and Figure’ where many references and examples are cited. Du Plessis describes the historical development of these charts from a price recording system to a charting method.
Traders kept track of prices by writing them down in columns. Point and Figure charts are based primarily on price action, not time. F charts will show no new data. F charts ideal for detecting directional patterns and trends in a condensed format. 5 and reversal threshold set to 3 box sizes. The correct way to draw a point and figure chart is to plot every price change but practicality has rendered this difficult to do for a large quantity of stocks so many point and figure chartists use the summary prices at the end of each day.
Some prefer to use the day’s closing price and some prefer to use the day’s high or low depending on the direction of the last column. The charts are constructed by deciding on the value represented by each X and O. Any price change below this value is ignored so point and figure acts as a filter to filter out the smaller price changes. The charts change column when the price changes direction by the value of a certain number of Xs or Os. Traditionally this was one and is called a 1 box reversal chart. More common is three, called a 3 box reversal chart. Because point and figure charts are plotted on squared paper, 45 degree lines may be used to define up trends and down trends from important highs and lows on the chart allowing objective analysis of trends.
Also in common usage are two methods of obtaining price targets from point and figure charts. The vertical method measures the length of the thrust off a high or low and projects the thrust to obtain a target. The horizontal method measures the width of a congestion pattern and uses that to obtain a target. 360 in the 1960s to produce point and figure charts.
Point and figure charts were automated in the UK in the early 1980s by the Indexia company run by Jeremy Du Plessis. This automation increased the popularity and usage of point and figure charts because hundreds of charts could be viewed and altered quickly and easily. At the same time a method of log scaling point and figure charts was devised, where the value of the Xs and Os was set to a percentage rather than a price. Kaufman, in New Trading Systems and Methods, 2005, documents research he and Kermit Zeig performed over many years computerizing point and figure charting. F charts are now widely presented in many trading applications either as a native component or as a third-party plug-in, script, or external technical indicator. All New Guide to the Three-Point Reversal Method of Point and Figure, 116 pages, ringbound, ISBN 99931-2-861-9.