7.4 Basics of Point-and-Figure Charting

Point-and-figure (P&F) is the last Chart Pattern Analysis unit at Level I. The x-axis chapter already defined P&F as a non-time construction. This OpenExamPrep section is independent teaching on the full Level I job: how P&F differs from a bar chart, what you must choose before you plot (box size, reversal size, high-low method), how those choices change sensitivity, when Xs versus Os print, how monthly labels annotate time without becoming an axis, the basic P&F patterns, 45-degree trendlines, and when percentage or log box sizes are the right grid.

Classical Techniques remains 33% of CMT Level I. P&F is still a price filter. It is not a second exam.

How P&F differs from a bar chart

A bar chart (or candle chart) plots one glyph per clock interval. The horizontal axis is time. Quiet Tuesdays occupy the same width as explosive Mondays. The bar records open, high, low, and close for that interval.

A P&F chart:

• Has no time axis. Columns sit next to each other because price reversed, not because a session ended.
• Plots X in a rising column and O in a falling column.
• Records filtered price travel on a box grid. Intra-box noise is invisible.
• Typically omits volume on the classical chart (volume can be studied separately).
• May label time (month letters, year marks) inside boxes. Those marks are annotations, not spacing.

A month can print no new box. A single day can add several boxes or even a new column. That is the point: P&F answers how far price traveled through the grid, not what day it is.

What you need in order to construct the chart

Three decisions, then a plotting rule.

1. Box size. The price increment of one X or one O. Examples: 0.50, 1 point, $1, or a percent of price. Every filled box means price traveled at least that increment through the grid.

2. Reversal size (reversal amount). How many boxes against the current column are required to start a new column. The textbook default is a 3-box reversal. Reversal distance = box size × reversal amount. With a $1 box and a 3-box reversal, price must travel $3 against the column before the other letter appears.

3. Price field: the high-low method. The usual Level I construction uses each period's high and low, not the close alone.

High-low method:

• In an X column, look at the high first. If the high fills one or more new X boxes, add those Xs and stop (do not also reverse on that period's low). If the high cannot add an X, look at the low. If the low travels the full reversal distance, start a new O column.
• In an O column, look at the low first. If the low fills new O boxes, add them and stop. If not, look at the high for a reversal into Xs.

Some software offers a close-only method. Know that it exists; be ready to work high-low on the exam.

Xs and Os never share a column. A reversal moves one column to the right and changes letter.

Worked high-low sequence

Box size $1, reversal 3. Last filled box is an X at 50.

Notice: time never decided a column. Period 1 and period 3 extended a column. Period 2 and period 4 reversed.

Sensitivity: changing box size and reversal

Both knobs change how much noise you see. They are not the same knob.

Smaller box size means more boxes for the same price path: more detail, more columns, more sensitivity. Larger box size means more filtering; small swings never print.

Smaller reversal (1-box) means a one-box contrary fill starts a new column: very sensitive, many columns, lots of whipsaw. Larger reversal (5-box) means price must travel farther against the column: fewer columns, slower turns, less sensitivity.

Worked sensitivity: a $20 stock that swings $0.80 most days on a $0.25 box and 1-box reversal will look like static. The same stock on a $1 box and 3-box reversal requires a $3 contrary move to change columns — a 15% trip — and will stay in one column through ordinary noise.

When to plot Xs versus Os

• Plot Xs only in a rising column, and only when price fills the next higher box (from the high under the high-low method).
• Plot Os only in a falling column, and only when price fills the next lower box (from the low).
• Do not plot an X because the calendar advanced.
• Do not plot an O because the close was red if the low did not fill a new box and a reversal was not earned.
• If a period's range is inside the current box and short of a reversal, you plot nothing.

That last sentence is the daily difference versus a bar chart. A quiet inside day always prints a bar. It often prints nothing on P&F.

Monthly column labels

Because the x-axis is not time, technicians write time onto the grid.

The usual textbook method: when a new calendar month first prints a box, that box contains a month code instead of a plain X or O. Two common codes:

• Letters: J, F, M, A, M, J, J, A, S, O, N, D (duplicate letters are read from context or from a year mark).
• Chartcraft-style digits: 1–9 for January–September, A, B, C for October, November, December.

A year mark may sit in the first box of January (or the first box of the year that prints). A long column can contain more than one month code if the column lasts across a month change. A quiet month that never fills a new box leaves no letter — that absence is information: price did not travel a box.

Monthly labels let you answer when this column happened. They do not restore equal monthly spacing. December and January can occupy one column or eight.

Basic P&F patterns

Patterns on P&F are column relationships, not OHLC silhouettes.

Double-top break (simple buy). An X column rises one box above the high of the previous X column. That is a P&F breakout buy of a prior column high. It is the P&F cousin of breaking horizontal resistance.

Double-bottom break (simple sell). An O column falls one box below the low of the previous O column.

Triple-top buy. An X column exceeds two prior X-column highs that stalled at the same box level. Three attacks, then a break.

Triple-bottom sell. An O column exceeds two prior O-column lows at the same level.

Bullish triangle / bearish triangle. Rising lows in O columns against falling (or flat) X highs, then a break of the coil — the P&F version of a triangle.

Catapult (know the idea at Level I): a triple-top buy, a corrective O column that does not make a new low, then another X-column breakout. The bearish catapult is the mirror after a triple-bottom sell.

These patterns still want you to know where you are on the larger 45-degree trend (next subsection). A double-top break below a broken bullish 45-degree line is a weaker long than the same break above an intact one.

Worked double-top: prior X column topped at box 54. After an O column to 50, the next X column fills 55. That one-box exceedance is the simple buy. It is not a head-and-shoulders. Do not import candle names onto X columns.

45-degree trendlines

P&F is drawn on a square grid: one box up is the same chart distance as one column across. A line that rises one box per one column is therefore a 45-degree line.

• A bullish support line is drawn at 45 degrees up from a significant low (often the low that began a major X-column advance).
• A bearish resistance line is drawn at 45 degrees down from a significant high.

Because the angle is standardized by the grid, two technicians should draw the same 45-degree line from the same pivot. That is a cleaner convention than arguing about which wiggle a bar-chart trendline should touch.

A filled box through the 45-degree line is the P&F trend-break. After a break, technicians often redraw from the new pivot. Internal 45-degree lines can frame shorter columns the way an intermediate trendline frames a bar chart.

Exam trap: drawing a 30-degree steeper P&F line by eye and calling it the textbook trendline. Level I's named tool is the 45-degree line on the square box grid.

When percentage or log box sizes are appropriate

A fixed dollar (or point) box is constant additive size. That is fine when the working history lives in a narrow percent band: a future oscillating 94–106, a two-month chart of a $50 stock that never left 48–53.

It becomes a bad grid when the history is a large multiple. A $1 box on a stock that traded 8 then 160 is 12.5% at the low and 0.6% at the high. Early history is insensitive; late history is hypersensitive. You will get nuisance reversals at high prices and blank columns at low prices.

Percentage boxes (and log-scaled P&F grids) keep the box a constant fraction of price — for example 1% or 2% per box. Equal relative moves occupy equal numbers of boxes. Use them when:

• The chart spans a wide price multiple (multi-year equity, a name that doubled or halved).
• You want comparable sensitivity at $20 and at $80.
• You are comparing percentage trend structure, not tick value.

Stay with arithmetic point boxes when:

• The instrument can sit near zero or go negative (some spreads) — percentages and logs misbehave.
• Decisions are in ticks and dollars on a short window (many futures day charts).
• The percent range of the window is tiny, so percent boxes add little.

That is the same arithmetic-versus-log judgment as the y-axis unit, applied to box size.

Independent CMT Level I practice by OpenExamPrep is at /practice/cmt.