Point-and-Figure Charting in Forex

What is point-and-figure?

Point-and-figure is a method to represent the price information on charts. It is like Japanese candlesticks, bars, and lines but different. It does not use the time scale at all. While the vertical scale is still designated for price, the horizontal scale measures only the number of price reversals or movements and says nothing about the time when they started or ended.

At first, such charts may seem strange and alien to a currency trader, but point-and-figure charts are the perfect noise filters and display only information that is really valuable — the prices big enough to bother paying attention to. And traders have full control of what price changes they want to be informed about.

Point-and-figure charts are often call P&F or PnF or simply XO. The name XO comes from the classic way such charts are drawn — the bullish movement is represented by the column of X's, while the bearish movement is shown with a column of O's. Of course, nowadays, almost any symbol or just a colored box can be used to chart point-and-figure movements.

To start drawing a P&F chart, first, it is necessary to decide the box size — the price change that would be big enough to draw as either X or O on the chart. Usually, the box size is chosen as 10 pips in Forex trading. Of course, any box size can be used — 6, 50, 100, or even 1,000 pips. The bigger the box size is the more filtered the P&F chart will be and the less movements it will contain. The smaller the box is the less filtered becomes the price and the more price movements get pictured on the chart.

Once the size of the box is chosen and the starting point is decided, the drawing can be started. When the price goes up 10 pips up (let us consider the box size = 10) an X can be drawn on the chart. When the price goes up another 10 pips, a new X is drawn on top of the first one and so on. If the price fluctuates within 10 pips, nothing is drawn on the chart. As you see, the filtering power of the method is obvious. To draw a bearish movement, it would be necessary to put an O for every 10 pips that the price goes down.

In addition to the box size, another important parameter is chosen by a trader — reversal size. The reversal size is the number of boxes that the price has to go against the current movement to end it and to start drawing a new one in the opposite direction. The reversal size of 3 and 4 is quite common but any integer number equal to or greater than 1 can be chosen as the reversal size.

Let us consider the reversal size = 3. If the bullish movement (a column of ascending X's) is currently being drawn, then to qualify for a reversal, the price has to go down by 3 × 10 = 30 pips. And if it does, the first O is drawn in the next column, one box below the top X of the previous column (the price went down); additionally, two more O's are drown in the same column below the first O as it was the movement of 30 pips, which for a box size of 10 pips means 3 boxes.

The process continues ad infinitum. As a result, a trader sees a lot of X's and O's plotted on the chart — they represent the price changes in pure form and can still be analyzed with the conventional technical analysis tools, for example — chart patterns. You can scroll down to see several examples of P&F charts plotted in various pieces of FX trading software.

Software for P&F charting

Point-and-figure charts aren't very popular in Forex trading — perhaps, they are the least used chart type, even among exotic chart types. A probable reason for this can be the fact that P&F charts are not supported by many trading platforms. For example, neither MetaTrader 4 nor MetaTrader 5 provide point-and-figure view as a part of their default toolsets. Fortunately, there are numerous charting solutions to draw Forex point-and-figure charts. It is also a very good thing that you are not obliged to trade using the same platform that you use for charting, so your choice should not be limited by your broker. Here, you will see several ways to get P&F charts for your analysis. All charts (except Oanda's) display EUR/USD with box size set to 6 standard pips and reversal set to 3.

Non-MetaTrader solutions

FXCM is a Forex broker that offers its own point-and-figure charting solution — via a proprietary Trading Station 2.0 desktop platform. The PnF view can be customized via box size and reversal values. Unfortunately, it doesn't support dynamic (e.g., ATR-based) box size setting. A point-and-figure view can be enabled via the platform's Marketscope 2.0 extension:

TradingView offers by the most functional and easy-to-use point-and-figure charting method. Not only it allows customization of every parameter, it also supports dynamic box size based on the ATR indicator:

MetaTrader solutions

MT4

Here is an overview of several free P&F charting indicators for MetaTrader 4.

Cute Point & Figure Indicator v.1.1 — a free version of the paid indicator with the same name. Comes with four different MetaTrader templates and can be quite tricky to set up. Once set up, offers a rather nice layout of X's and O's or boxes directly in the main chart window, with dates, months and years marked directly on the chart — very handy. The chart settings can be adjusted to the smallest details. The main drawback — calculation is very slow and can freeze a trading terminal. Oh, and the source code is not available for tweaking.

FXI Point and Figure by Forex Impact — not only it is a fully customizable and very fast P&F indicator, it also shows the trend lines for the price movements and gives signals according to the common point-and-figure chart patterns. Additionally, its code is open-source and can be used to build even more sophisticated XO indicators.

Point and Figure mod 2 offers a rather clear P&F picture for your MetaTrader charts. Box size can be set either manually or calculated by the indicator automatically using the average trading range. A trader can tune the look of the P&F chart and limit the number of original candles it uses for calculation. This can help if the indicator becomes too slow.

my Point and Figure — our own test point-and-figure indicator in a very unstable and experimental state. It shows XO's based on real-time tick data and it will take some time (several hours probably) for it to draw something useful. It doesn't work with the existing chart data as it isn't accurate enough to draw high-quality P&F. Thus, this indicator will be completely restarted if it is re-attached to the chart or MetaTrader is re-launched. It is displayed in the main chart window and works extremely fast compared to the conventional P&F indicators. It is included here only for research's sake. Of course, it can also be used to create your own P&F indicator for MT4 as its source code is fully open.

nb Point and Figure — an awesome and fully configurable P&F chart indicator. Not only it can display time information near the XO columns, it also displays projections of the P&F chart onto the main chart, showing which candles relate to which price movement. It works pretty fast and the number of bars it processes can be changed. The disadvantage is that its source code is not available for editing.

X-dOrsey — quite similar to the previously described Point and Figure mod 02 indicator. Not the fastest P&F solution out there but, fortunately, the number of bars for processing is adjustable.

MT5

There aren't many publicly available MT5 point-and-figure indicators — despite the fact that MetaTrader 5 is better suited for P&F chart building than MT4 due to the availability of real tick history. Anyway, feel free to download and try the following indicators:

Point-and-Figure — is our old-school P&F solution that works with the real ticks and is capable of loading tick history from your broker.

APFD — a detailedly explained point-and-figure indicator coded in MQL5 and based on M1 charts plotting. It was developed by Dmitriy Zabudskiy. APFD displays in a separate indicator window and, rather untraditionally, is using the candle indicator plot rather than graphical chart objects. This allows for a faster drawing but does not look as good as the old school X's and O's. Additionally, the indicator is glitchy. Fortunately, it can be cleared and redrawn with hotkeys.

XO v01 — a P&F indicator programmed by Alexey Sergeev and Boris Gershanov from FINEXWARE Technologies GmbH. Same as APFD, it displays the chart plot using candlesticks rather than chart objects, but for some reason it also adds candlewicks to them. Also, it does not show any reference levels in its separate window, and it is really hard to tell how many rising or falling cells are inside one bar. This indicator is plotted based on the chart's timeframe it is attached to. Although it was published much earlier than APFD, I consider it somewhat inferior to the latter and list it second.

Paid options

There are also some paid P&F solutions. We have not tested any of them, but logically they should be better than the free options, at least in some minor details, but it is up to you to discover if that is so. By the way, if you have already tried any of point-and-figure solutions below, please share your experience.

MultiCharts — prices start from $97 per month but a free trial version is available. It is a professional charting software package and it is heavy-loaded with features. P&F is just one of the many tools it has.

PointAndFigure.com — a specialized P&F software package with a yearly subscription fee of $357. Among its features are: automatic P&F pattern recognition, works with many data sources, automatic calculation of price objectives and P&F indicators.

Cute Point & Figure Indicator v.1.3 — a more advanced but paid ($29) version of the above-mentioned free indicator for MetaTrader 4. Supports moving averages, alerts; displays price reverse time; offers optimized performance and more templates.

Books

Free

In addition to the introductory P&F patterns e-book by BlueChipOptions.com (a website long gone), there are two more free books available from EarnForex.com on this subject:

Point & Figure for Forex — an article from one of the issues of Technical Analysis of Stocks & Commodities magazine back from 2007. It offers a basic explanation of the XO charting and provides descriptions of 6 patterns.

Point and Figure Charting: A Computational Methodology and Trading Rule Performance in the S&P 500 Futures Market — a scientific research paper by John A. Anderson and Robert W. Faff. It provides a clear scientific definition of point-and-figure charts and uses simulation through ultra-high frequency data (S&P 500 futures) to test 8 different patterns' performance. The results are both interesting and promising.

Paid

You can also read some of the famous paid books about P&F charting and its secrets:

Point and Figure Charting by Thomas J. Dorsey — a book by the P&F guru who also used to run the PnF University at Dorsey Wright & Associates before its acquisition by NASDAQ.

The Definitive Guide to Point and Figure by Jeremy Du Plessis — a costly book praised by many traders as the bible of point-and-figure charting and trading.

Conclusion

Likely, this guide omits some of the interesting and powerful P&F charting indicators, software, or educational resources. If you know some good examples, please do not hesitate to start a discussion on this topic on our traders' forum. Please do the same if you have any questions about using point-and-figure charting in FX trading.