XO..X+........X.|........210 ......+.................+.............O.....O.O..X9X.......XC1........200 _______+_________________+_____________+______OX_XOXO._____XOX________195 ........+.................+...........|.+.....OX8XOXO+.....XOX........190 .........+.................+..........|..+....OXOXOXO.+..X.XOX........185 ..........+.................+.........|...+...O.O.O.O..+.XOXO|........180 ...........+.................+........|....+........O...+XOB.|........175 ____________+_________________+_____________+_______OX_X_XO___________170 .............+.................+......|......+......OXOXOX+..|........165 ..............+.................+.....|.......+.....OXOAOX.+.|........160 ...............+.................+....|........+....OXO.OX..+|........155 ----------------+-----------------+---0-------------O---O+---0-------150 -----------------+-----------------+--2-----------------+----3--------
560550540530520510500490480470460450440430420410400390380370360350340330320310300290280270260250240230220210200195190185180175170165160155150
You will see that in the first two instances (June, September 2002) the bearish resistance trendline was only straddled and in the third instance (October 2002) the extrapolated trend line wastruly broken.(If you’re trying to work out where these months occur on the chart, look for the month codesin the columns. June, for example, is indicated by a ‘6’ at a height of 280.)
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Interpreting the Charts
Chart 2.4 – Buy signals on the € / $ECU / standard / 3 box rev / 2001.12.06 to 2003.06.051.19 .|.......|...X..... 1.191.18 .|.......|...X..... 1.181.17 _____________X_____ 1.171.16 .|.......|...X..... 1.161.15 .|.......|...X..... 1.151.14 .|.......|...X..... 1.141.13 .|.......|...5..... 1.131.12 _____________X_____ 1.121.11 .|.......X...X..... 1.111.10 .|.......3O..X..... 1.101.09 .|.......XOX.X..... 1.091.08 .|.......XOX4X..... 1.081.07 _________XOXOX_____ 1.071.06 .|.......1OXO...... 1.061.05 .|.......XO........ 1.051.04 .|.......X......... 1.041.03 .|.......X......... 1.031.02 _____X___C_________ 1.021.01 .|...XO..X......... 1.011.00 .|.X.XO9.B......... 1.000.99 .|.X7XOXOX......... 0.990.98 .|.XOXOXOX.+....... 0.980.97 ___XO_8XOX+________ 0.970.96 .|.X..O.O+......... 0.960.95 .|.6....+|......... 0.950.94 .|.X.....|......... 0.940.93 .|.X.....|......... 0.930.92 ___X_______________ 0.920.91 .X.5.....|......... 0.910.90 .XO4.....|......... 0.900.89 CXOX.....|......... 0.890.88 O1OX.....|......... 0.880.87 O.O3............... 0.870.86 ..O................ 0.86-0-------0---------2-------3---------
Point-and-figure detects all major moves, as shown here on the rally of the Euro against theDollar. The chart is said to be bullish, because the last signal was a buy.=====
When is a support or resistance line broken?The line is broken if an entire box can be filled above (resistance line) or below (supportline). If the filled box coincides with the line only, it is said that the X or O straddles theline.=====
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The Complete Guide to Point-and-Figure Charting
Summary of buy signalsFigure 2.11 – Buy signal summary630620610600590580570560550540530520510500490480470
72
B1...B2....B3.....B4.....B5.......B6........B7........+B8...............................................+....................+.................................................+...................X+................................................X+..................XO+..............X.....X......X......X........X...XO+.X...........X+..XOX+...........X.X...X.X..X.X.X....X.X..X.X...X...XOX+X...........X...XOXO+.X........XOX..OXOX..XOXOX..X.XOX..XOXOX.X...XOXOX.+........+X....OXOX+X........XOX..OXOX..XOXOX..XOXOX..XOXOXOX...XOXOX+........+OX....OXOXOX.........O...OXO....O.O...XOXO....OXOXOX...XOXO+.+..O...+.OX....OXOXOX+............O.............O......O.O.O..X.XOX+.....O..+.XOX....O.O.O..........................................XOXO+......O.+.OXOX...................................................XOX+.......O+.XOXOX....................................................O+........OX.XO.O.....................................................+.........OXOXO.................................................................OXO...................................................................O.O.............................................................................................
630620610600590580570560550540530520510500490480470
Interpreting the Charts
The sell signals
Based on point-and-figure’s symmetry, all sell signals are the exact opposite of the buy signals,so if you want to, you can skip the next few paragraphs. You may, however, find the discussionand illustrations of the sell signals helps to clear up any confusion, as well as serve as an indirectreview of the buy signals.
S-1 – Simple Bearish Sell
The Simple Bearish Sell signal occurs when theprice falls, rises and falls again with the currentdecline or current column of Os dropping one boxbelow the lowest O of the prior column of Os.The occurrence of the simple sell formation callsfor two responses. It demands that all longpositions be liquidated and also suggests, butdoes not demand, that consideration be given to ashort sale.
Figure 2.12
...............X.........OXO........OXO........O.O..........O................
The trader should never wait around for a more complex sell formation to evolve before closingout his longs, because the occurrence of the S-1 signal immediately indicates a bearish posture.But a short need not be taken if the trader prefers not to be on the short side at all or would preferto wait for a more bearish formation before shorting.
S-2 – Simple Bearish Sell with a Declining Top
The Simple Bearish Sell with a Declining Top isthe second of the sell formations. The S-2 is morebearish than its cousin the S-1, for it has adeclining top as evidence that selling pressure iscoming in at lower levels with each rally.
Figure 2.13
...............X...........XOX.........XOXO........XOXO.........O.O...........O.................
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The Complete Guide to Point-and-Figure Charting
The third and remaining sell signals are not really sell signals for the closing out of longsbecause this is always done on an S-1 or S-2. Instead, these more complex formations onlysignal the opportunity for effective short selling. They are considered more complex formationsin that they involve at least five columns, three of Os and two of Xs, and all contain within theirpattern at least one of the two basic signals, S-1 and S-2.S-3 – Breakout of a Triple Bottom
The third sell signal is called the Breakout of a TripleBottom regardless of whether the tops are level ordeclining. Declining tops represent the more bearishpattern.The Breakout of a Triple Bottom evolves from a pricedecline, an upside reversal, a second decline that meetsdownside support at the same level as the lowest O ofthe prior declining column, a second rally which fails tobreak out on the upside and a third decline which dropsone box below the lowest Os of the prior two columns.
Figure 2.14
.................X.X.........OXOXO........OXOXO........O.O.O............O..................
Never anticipate the completion of the S-3 before it happens by shorting in anticipation, becausethe support which stopped the decline of the first and second columns of Os might hold a thirdtime and be strong enough to send the price up to a topside breakout.There is never any assurance that a signal will occur until it does occur, and thus signalsmust never be anticipated or traded prematurely.
S-4 – Descending Triple Bottom
The next formation is the Descending Triple Bottom. It issimply two successive S-1 and/or S-2 formations in fiveconsecutive columns. Or, defined differently, it iscomposed of a column of Os, a rally of Xs, a secondcolumn of Os which declines one box below the low ofthe prior declining column, followed by a second pricerise succeeded by a third decline signalling the sell byfalling one box below the low of the prior decline.
74
Figure 2.14
..................X............OXOX..........OXOXO.........OXOXO...........O.O.............O....................
Interpreting the Charts
S-5 – Spread Triple Bottom
The fifth sell pattern, the Spread Triple Bottom,has the basic triple bottom design of the S-3, yetthe formation is spread over seven rather thanfive columns.
Figure 2.15
....................X...X...........XOXOXO.........OXOXOXO.........OXOXO.O.........O.O...O...............O......................
S-6 – Downside Breakout of a Bearish Triangle
The Downside Breakout of a Bearish Triangle isthe sixth of eight sell signals. This formationoriginates from an earlier sell signal followed bya major decline.After the decline, support develops and a rallyoccurs which finally gives way to a new declinethat bottoms higher than the low of the priordeclining column. The next rally falls short ofthe high of the preceding rally and the priceagain declines.This pattern of rising bottoms and falling topscan continue for any number of columns anddefines the sides of the triangle. The formation isfinally completed and a sell signal generatedwhen an O column declines below the lowersupport line.
Figure 2.16
..............+...........X+.........OXO+........OXOX+.......O.OXO+........OXOX+.......OXOXO+......OXOXO.......OXO+O.......OX+.........O+..........+....................
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The Complete Guide to Point-and-Figure Charting
S-7 – Downside Breakout Below a Bullish Support Line
The next formation, the Downside BreakoutBelow a Bullish Support Line, occurs when thereis a downward penetration of a well definedbullish support line. The bullish support line isthe 45 degree best-fit line of bottoms and thepenetration must completely clear the supportline, not just touch or straddle the box throughwhich it crosses from lower left to upper right, aswell as decline one box below the lowest O ofthe prior column.
Figure 2.17
................................X.X............XOXOX..........XOXOXO.+.......XOXOXO+........XOXOXO.........XOXO+O........OXOX+.O........OXO+...........OX+............O+.............+............................
S-8 – Downside Breakout below a Bearish Support Line
The eighth and last of the sell signals is theDownside Breakout below a Bearish SupportLine. This pattern evolves from a suddenbreakout below a bearish support line runningfrom upper left to lower right at a 45 degreeangle which has repeatedly held in the past.
76
Figure 2.18
..............................X.X...........XOXO..........XOXOX.........XO.OXOX.......X+.OXOXO......X.+O.OXO......X..+.O.O......X...+..O......X....+.O............+O.............O.............O+.................
Interpreting the Charts
Examples of sell signals
There are lots of great examples of sell signals that we could show you, especially in the actualmarket environment. The ones below are of a typical high-tech stock and the Nikkei225 index.Chart 2.5 – Sell-signals on ARM Holdings [ARM.L]: S3 and S8ARM.L / 3 box rev,250 ___________________________________________________245 .X.................................................240 .XO................................................235 .XOX...............................................230 .XOXO..............................................225 OXOXO______________________________________________220 OXOXO..............................................215 O.O.O..............................................210 ....O..............................................205 ....O..............................................200 ____O______________________________________________195 ....O..............................................190 ....O..............................................185 ....OX.......................X.X...................180 ....OX6X.....................XOXO..................175 ____OXOXO____________________XOXO__________________170 ....OXOXO........X...........XO.O..................165 ....O.OXO........XO..........X..O..................160 ......OXO........XO........X.X..O..................155 ......O.O........XO......8.XOX..O..................150 ________O__X_____XOX_X___XOXOX__9__X_______________145 ........OX.X7X...XOXOXOX.XOXO...OX.XO..............140 ........OXOXOXO..XOXOXOXOXOX....OXOXO..............138 ........OXOXOXO..XOXOXOXOXOX....OXOXO..X...........136 ........OXOXOXO..XOXOXOXO.OX....OXO.O..XO..........134 ________OXOXOXOX_XOXOXOX__OX____OX__O__XO__________132 ........OXOXOXOXOXOXOXOX..OX....OX..OX.XO.........+130 ........O.OXOXOXOXOXOXOX..OX....OX..OXOXOX.......+.128 ..........OXO.OXOXOXOXO...OX....O...OXOXOXO.....+..126 ..........OX..OXOXO.O.....O.........OXOXOXO....+...124 __________OX__OXO___________________OXOXOXO___+____122 ..........OX..OX....................OXOXOAO..+.....120 ..........O...OX....................O.OXO.O.+......118 ..............O.......................OX..O+.......116 ......................................OX..+........114 ______________________________________OX_+O________112 ......................................OX+.O........110 ......................................O+..O........108 ......................................+...O........106 ..........................................O........104 __________________________________________O________62 ..........................................O........60 ..........................................O........59 ..........................................O........58 ..........................................O......X.57 __________________________________________O______XO56 ..........................................O......XO55 ..........................................O......XO54 ..........................................O......XO53 ..........................................O......XO52 __________________________________________O______XO51 ..........................................O......XO50 ..........................................O......X.49 ..........................................O..X...X.48 ..........................................O..XO..X.47 __________________________________________O__XOX_X_46 ..........................................O..XOXOX.45 ..........................................OX.XOXOX.44 ..........................................OXOXOXOX.43 ..........................................OXOXOXOX.42 __________________________________________OXOXOXOX_41 ..........................................OXOXO.OX.40 ..........................................O.OX..OX.39 ............................................O...OX.38 ------------------------------------------------O-37 ---------------------------------------------------
25024524023523022522021521020520019519018518017517016516015515014514013813613413213012812612412212011811611411211010810610462605958575655545352515049484746454443424140393837
In this example, we see theformation of a base at 215which is eventually broken,generating a breakout from atriple bottom.Later, not only a simple sell isformed, but also a bullishsupport is broken. Such achart shouts: Sell!A sell around 110 wouldnicely be covered at 46,based on a simple buy signal.
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The Complete Guide to Point-and-Figure Charting
Chart 2.6 – Nikkei-225 and its first sell signal: a simple sell or double bottombreakoutN225 / 4 box rev / 1988.01.18 to 2003.01.1538000 C|.........|......|.....|.||||....|....||..|.............|...............3800037000 X2.........|......|.....|.||||....|....||..|.............|...............3700036000 BO.........|......|.....|.||||....|....||..|.............|...............3600035000 8O_______________________________________________________________________3500034000 5O.........|......|.....|.||||....|....||..|.............|...............3400033000 4OX........|......|.....|.||||....|....||..|.............|...............3300032000 23X8.......|......|.....|.||||....|....||..|.............|...............3200031000 1O5O.......|......|.....|.||||....|....||..|.............|...............3100030000 COXO_____________________________________________________________________3000029000 XOXO.......|......|.....|.||||....|....||..|.............|...............2900028500 B4XO.......|......|.....|.||||....|....||..|.............|...............2850028000 6OXOX......|......|.....|.||||....|....||..|.............|...............2800027500 5O.OXO.....|......|.....|.||||....|....||..|.............|...............2750027000 X__OXO______3____________________________________________________________2700026500 4|.OXO.....|X6....|.....|.||||....|....||..|.............|...............2650026000 X|.O.OX....|XO....|.....|.||||....|....||..|.............|...............2600025500 3|...OX9...|XO....|.....|.||||....|....||..|.............|...............2550025000 X|...OXOX.X|XO..X.|.....|.||||....|....||..|.............|...............2500024500 X____OXOXBX1XO__AB_______________________________________________________2450024000 2|...O.OXOXOXOX.XO|.....|.||||....|....||..|.............|...............2400023500 X|.....OXOXOXOX8XOX.....|.||||....|....||..|.............|...............2350023000 X|.....OXOXO27XOXOXO....|.||||....|....||..|.............|...............2300022500 1|.....OXOCO.OXOXCXO....|.||6|....|....||..|.............|...............2250022000 _______OXO___O_O9O1O________X8___________________________________________2200021500 ||.....OX..|...O.O|O....|.6|4O....|....||..|.............|...............2150021000 ||.....OX..|......|O....5.59XO....|....||..|.............|...............2100020500 ||.....AX..|......|2....XB2O1OX...|....|3..|.............|...............2050020000 ||.....O...|......|3....XOXOX9X8..|....|24.|.............|...............2000019500 ___________________O____4OXOXCXO________1O_______________________________1950019000 ||.........|......|4X.X.XOXBCOXO..|....|BO.|.............|...............1900018500 ||.........|......|OX69AXO1191XO..|....|XO.|.............|...............1850018000 ||.........|......|OXOXOXOXOXO5O..|....|7O.|.............|...............1800017500 ||.........|......|O5OXOXOX28O.A..|....|65.|.............|...............1750017000 ___________________O_OXOXOXOX__OX_X_____XO_______________________________1700016500 ||.........|......|..OXB3OC3X|.OXCX6...|4O.|.............|...............1650016000 ||.........|......|..OXO|O|OX|.BXOXO...|XO.|.............|...............1600015500 ||.........|......|..7X.|.|OX|.OXO1O...|X7.|.............|...............1550015000 ||.........|......|..8X.|.|67|.O.O|O..B|3A.|.............|...............1500014500 _____________________O_____O_______8__X1XO________5______________________1450014000 ||.........|......|.....|.||||....|O..XOXCX|X.....XO.....|...............1400013800 ||.........|......|.....|.||||....|OX.XOXOX1X2X...XO.....|...............1380013600 ||.........|......|.....|.||||....|9XOXOXOXOXOXOX.XO.....|...............1360013400 ||.........|......|.....|.||||....|AXOXOXOXOXOXOXOXO.....|...............1340013200 ___________________________________OXOXO_O_O_OXOXOX6_____________________1320013000 ||.........|......|.....|.||||....|O.OX||..|.OXOXOXO.....|...............1300012800 ||.........|......|.....|.||||....|..O.||..|.OX4.OXO.....|...............1280012600 ||.........|......|.....|.||||....|....||..|.3X..O.O.....|...............1260012400 ||.........|......|.....|.||||....|....||..|.OX....7X....|...............1240012200 _____________________________________________OX____OXO___________________1220012000 ||.........|......|.....|.||||....|....||..|.OX....OXO...|X.5............1200011800 ||.........|......|.....|.||||....|....||..|.OX....O8O...|XOX6...........1180011600 ||.........|......|.....|.||||....|....||..|.O.....O.O...|XOXO...........1160011400 ||.........|......|.....|.||||....|....||..|.........O...|XOXO...........1140011200 _____________________________________________________O____XOXO___________1120011000 ||.........|......|.....|.||||....|....||..|.........OX.X|X4.OX..........1100010800 ||.........|......|.....|.||||....|....||..|.........OXBXC3..OXO.........1080010600 ||.........|......|.....|.||||....|....||..|.........9XOXOX..OXO.........1060010400 ||.........|......|.....|.||||....|....||..|.........OXOXOX..O7O.........1040010200 _____________________________________________________OXOXOX__O_O_________1020010000 ||.........|......|.....|.||||....|....||..|.........OXO.1X....O.........100009800 ||.........|......|.....|.||||....|....||..|.........OX..2X....OX........ 98009600 ||.........|......|.....|.||||....|....||..|.........OA..O.....OXA....... 96009400 ||.........|......|.....|.||||....|....||..|.........O...|.....9XO....... 94009200 _______________________________________________________________OXOB______ 92009000 ||.........|......|.....|.||||....|....||..|.............|.....O.OXC..... 90008800 ||.........|......|.....|.||||....|....||..|.............|.......OXO..... 88008600 ||.........|......|.....|.||||....|....||..|.............|.......OXO..... 86008400 ||.........|......|.....|.||||....|....||..|.............|.......OXO..... 84008200 89---------9------9-----9-9999----9----90--0-------------0--------------- 82008000 90---------1------2-----3-4567----8----90--1-------------2--------------- 8000
The Nikkei during the period 1990-2002 is a tremendous example of a bear marketand should never be forgotten – showing that bear markets can last for a very longtime. Therefore we have included this long-term Nikkei point-and-figure chart, wherewe see a first sell on the fourth column and thereafter many more sell signals can bedetected.
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Interpreting the Charts
Summary of sell signalsFigure 2.19 – Sell signal summary470460450440430420410400390380370360350340330
S1...S2....S3.....S4......S5......S6...........S7............ S8...........................................+.......................................................................X+.........................X.X............X.............X......X...X...OXO+........................XOXO.......X...XOX....X.X...OXOX....XOXOXO..O