Point and Figure Toolbox

Point and Figure Toolbox

All Rights Reserved Copyright  2004 Printed in the U.S.A. Equis International, Inc. 90 South 400 West Suite 620 Salt Lake City, UT 84101

Equis and MetaStock are registered trademarks of Equis International. All other product names or services mentioned are trademarks or registered trademarks of their respective owners. This product is not a recommendation to buy or sell, but rather a guideline to interpreting the specified analysis methods. This information should only be used by investors who are aware of the risk inherent in securities trading. Equis International accepts no liability whatsoever for any loss arising from any use of this product or its contents.

Contents Point and Figure Toolbox

3

Introduction................................................................................................................................3 A Word about Trading...............................................................................................................4 Quick start information ..............................................................................................................5 Getting your data........................................................................................................................5 Creating a Watchlist...................................................................................................................7 Looking for signals ..................................................................................................................10 Analyzing the chart ..................................................................................................................11

What is Point and Figure?

15

How Does This Help Time-Oriented Charting? ......................................................................18

Point and Figure Patterns

19

Double Top ..............................................................................................................................19 Double Bottom.........................................................................................................................21 Bullish Signal...........................................................................................................................21 Bearish Signal ..........................................................................................................................22 Triple Top ................................................................................................................................23 Triple Bottom...........................................................................................................................24 Triangles ..................................................................................................................................25 Bearish Signal Reversed ..........................................................................................................27

Point and Figure Trendlines

29

How to Use the Point and Figure Tools

31

The Indicators ..........................................................................................................................31 The Explorations......................................................................................................................38 The Expert Advisors ................................................................................................................40 The System Tests .....................................................................................................................41

How to Write Your Own Point and Figure Formulas

43

Current column ........................................................................................................................44 Column change ........................................................................................................................44 Current box ..............................................................................................................................45 Contents • i

Trend direction.........................................................................................................................45 Resistance.................................................................................................................................46 Support.....................................................................................................................................46

ii • Contents

Point and Figure Toolbox

Introduction MetaStock has had the ability to display Point and Figure charts since its early DOS versions. However, it has not been possible to do any formula based analysis of these charts. This chart style, which ignores time, had no corresponding function commands. The Point and Figure Toolbox was designed to add this capability to MetaStock. The most visible part of this toolbox is a group of indicators, system tests, explorations, and experts. Most notably, it provides a pattern recognition trading system and plots support and resistance levels. Also included is a pair of indicators to plot true 45 degree trendlines on Point and Figure charts. All these tools display accurately on time based charts as well. All these formulas are open. Anyone can read and modify them. Further, at the end of this manual is a complete explanation of the toolbox’s formula functions’ syntax. This makes it a true toolbox, opening the door for anyone to write formulas for Point and Figure analysis. Whether you use the functions to write your own formulas, or just use the pattern trading system that is provided, this toolbox will help you in your trading decisions. It should be noted that the formulas and this manual were written with a bias toward stocks. However, they will work just as well with futures. Some minor editing changes may be needed, such as changing the box size to be used. The Point and Figure patterns used in this toolbox were taken from the book by Steven Dorsey: Point and Figure Charting. For a more in depth study of Point and Figure, Steven Dorsey’s book is an excellent source.

Point and Figure Toolbox • 3

A Word about Trading This toolbox has a pattern trading system which gives buy and sell signals. These signals are intended as alerts that a possible trading opportunity exists. The author of this toolbox does not make any promises on the performance of this system. The signals are provided because they are ones generally used by a Point and Figure chartist. However, the user of this toolbox has the final say in any trade. It is incumbent upon the user to evaluate each signal and decide for himself if any of the signals are worthy of a trade. When a trade is entered, stops should always be used. Neither the system tests nor the expert advisors with this toolbox have stops coded into them. It is the individual user’s responsibility to decide how to place these stops. Everyone has their own ideas of appropriate risk and to what degree they need to protect their trades. If you feel you need advice in this area, please consult your broker or a financial advisor.

4 • Point and Figure Toolbox

Quick start information If you can’t wait to get started, the steps below will show you how to begin using the system. To get the most out of this toolbox, please examine the rest of this manual. The time will be well spent.

Getting your data In version 9.0 of MetaStock, you do not need to store your data on your hard drive. However, explorations and system tests will run substantially faster on local data than on data accessed through the Internet. Therefore, the following steps describe how to create local data files and update them. This is a reprise of the information in The DownLoader manual and assumes you are signed up with a data provider supported by The DownLoader. If you do not already have local data, please start here. 1.

Start The DownLoader. In the File menu, select New and then Security. You should see a window like the following:

From here, you can create data files for as many securities as you would like. MetaStock version 9.0 allows 6000 securities per folder. For this quick start, we will only make files for the S&P 500. 2.

Click on the Look-up button to get the following window:

Point and Figure Toolbox • 5

3.

Make sure the Type is set to Stocks – Common.

4.

Change Group to S & P 500

5.

Delete any text in the search field

6.

Click Select All

7.

Click OK

You now return to the New Security window, which should now have (MULTIPLE) displayed in three of the fields:

8.

Set the top line (the folder field) to where you would like the data stored. If you have no preference, use “C:\MetaStock Data\S&P 500”.

9.

Set the First Date to how far back you want to see historical data. It is recommended you use at least 500 records (about 2 years). This will store enough data for most securities to show several columns of Point and Figure data.

10. Make sure the periodicity is set to Daily. 11. Click OK. This will return you to the main Downloader screen. Your data files have 6 • Point and Figure Toolbox

been made, but currently have no data in them. To get the data: 12. If you are not currently connected to the Internet, log on to the Internet now. 13. In the Tools menu, select Download Prices. This will bring up the Select Securities screen:

14. On the left hand side, click the plus in front of My Computer, then the plus in front of your C drive. You should see the folders on your hard drive. If you saved the new securities in the suggested folder then: 15. Click the plus in front of MetaStock Data 16. Click the folder labeled SP 500 and then click the button labeled Add. The folder is now listed on the right side 17. Click OK to go to the Vendor Selection Screen 18. Select your data Vendor and click OK When the download is finished, close the collection report and then close The DownLoader.

Creating a Watchlist The most common Point and Figure charts use a box size of 1 and a reversal amount of 3. A popular Point and Figure method narrows this definition to apply only when the security’s price is between 20 and 100. Point and Figure Toolbox • 7

In keeping with this, the P & F Watchlist Maker is an exploration designed to identify the securities Point and Figure will work best with. The exact requirements it looks for are: •

at least 500 records of data

•

at least 5 columns in a Point and Figure chart

•

the lowest price is at least 25

•

the highest price is no more than 100

The steps to create a watchlist are listed below:

8 • Point and Figure Toolbox

1.

Open MetaStock and in the Tools menu, select The Explorer

2.

Highlight P & F Watchlist Maker and click Explore. This brings up the Select Security screen:

3.

Click the Add Securities button. This opens a window similar to the Open dialog.

4.

Select Local Data on the left side of the dialog

5.

Browse to the folder containing the data you wish to use. If you followed the steps in Getting Your Data, this will be C:\MetaStock Data\ SP 500

6.

In the Tools menu, click Select All.

7.

Click Open. You are returned to the Select Security window and all the securities from the selected folder are listed.

8.

If you have any other folders you would like to include, go back to Add Securities and select them as well.

9.

Click OK to start the exploration.

10. When the exploration is finished, click the Reports button.

These securities can be saved to Favorites for easier access. 1.

Select the first security. Point and Figure Toolbox • 9

2.

Use the scroll bar to move to the bottom of the list

3.

While holding the shift key, click on the last security (they should all be highlighted now).

4.

Right-click on one of the highlighted securities and then leftclick on “Add to Favorites” in the pop up menu.

Looking for signals The same procedure used to create the watchlist is also used to find which securities have just completed one of the patterns identified by the trading system. However, after running the watchlist maker and saving the watchlist, the selection of the securities to use is easier: 1.

Open MetaStock and in the Tools menu, select The Explorer.

2.

Select P & F Pattern Search and click Explore.

3.

Click the Add Securities button.

4.

Select Favorites from the left side of the dialog.

5.

In the Tools menu, click Select All.

6.

Click Open.

7.

Click OK to start the exploration.

When the exploration finishes, you will get a report similar to the one below:

10 • Point and Figure Toolbox

A “-1” means a sell short signal was generated. A “1” means a buy signal was found. A zero in a column means that pattern was not found for that security. By clicking on the column headings, you can sort for long or short signals. As some patterns are part of other patterns, it is not uncommon to see a security with non-zero values in several columns. For more information about these patterns, please refer to the section, Point and Figure Patterns, later in this manual.

Analyzing the chart After you have finished running an exploration, the final step is to examine the chart. Below is a bar chart of Mettler Toledo. The exploration shown above says it just had a double top and a bullish signal pattern. After opening the chart, the P&F Support Trendline and the P&F Resistance Trendline were plotted in the same inner window as the prices. The P&F Short Commentary expert was also attached to the chart.

Point and Figure Toolbox • 11

A double top pattern back in November 2002 marks the beginning of an uptrend. Since then, two bullish signal patterns have formed during this securities climb from a low of 25 to its current price of 39. On the last bar, a third bullish signal pattern has just occurred. In August 2003, the security broke through the P&F Resistance Trendline with a move a large enough to change the overall trend to Bullish. This was in conjunction with a bullish signal pattern. Even though this pattern failed to move higher, the current bullish signal pattern on the rally supports the previous signal. The current closing price is above the half-way point of the channel formed by the support and resistance trendlines. This does not leave much room for further price movement before resistance is encountered. However, the current trend has shown the ability to exceed this resistance. Finally, here is the same data in a Point and Figure chart.

12 • Point and Figure Toolbox

The support and resistance trendlines looked choppy on this chart because downtrend is barely established before it is being reversed. Therefore, they were replaced with the P&F 45 Up indicator. This shows the same uptrend but started a little earlier. At this point, you would need to make the final decision. There are several indications that this is a good signal and one caution of the nearby resistance trendline. If you are satisfied, you can take or reject the trade based on just this information. You can also seek confirmation of the signal by: •

Plotting other indicators on the bar chart.

•

Looking at the chart using candlesticks or another price style.

•

Changing the chart to weekly or monthly to look at the longterm price trends.

•

Analyzing the sector or industry group this security belongs to.

•

Analyzing the market as a whole.

Point and Figure Toolbox • 13

What is Point and Figure?

Point and Figure has been around for at least a century, if not longer. In its most basic form, it is a graphical depiction of supply and demand. X’s are marked as prices move up to denote increasing demand. As supply begins to outpace the demand, O’s are drawn in another column. As the price moves back and forth, columns are added to the right side of the chart. This steady advance to the right is not affected by time. The price movement from one value to another might be done in a day or in a year. As long as the movement does not retrace far enough to trigger a reversal, the movement will be drawn in a single column. The key values in Point and Figure are the box size and the reversal amount. In MetaStock, both of these values are set when the chart is drawn. If you change either one, the chart can look dramatically different. The box size is the amount the price must move before a new X or O is drawn on the chart. The reversal amount is how many boxes the price must move against the current direction to trigger a reversal. To better understand how Point and Figure is drawn, start with a normal piece of graph paper. For this example, let each box represent $1. Assume a security has a price of $50. About the middle of the page, assign one box the value of 50. Put an X in this box.

If the price moves to 51, another X will be placed in the same column, right above the previous X.

What is Point and Figure? • 15

If the price then moves to 52.75, only one more X is placed in this column. This X represents a move to 52. Since the price did move a full $1 from 52 to 53, an X can not be placed in the 53 box.

If this trend continues till the price reaches $55.25, the column will have 6 X’s in it. Now the price may begin to fall. In this example, we will use a reversal amount of 3. This means the price must move 3 boxes before a single O can be drawn. One more aspect when counting downward: a value of $52.50 is read as being in box 53. Therefore, in the example with an X in box 55, the price must fall to 52 or less to trigger a reversal. When this occurs, an O is drawn in boxes 54, 53, and 52.

16 • What is Point and Figure?

Please note, a new column is always started to the right of the current column and offset by one box from the previous column. This is why the previous example started drawing O’s in the 54 box instead of starting in the 52 box. A further example of this is shown below. If the prices were to fall to $47 before starting upward again, the next column of X’s would begin in the 48 box.

As the prices move up and down, the chart will plot the extent of each move. By watching for places where the prices repeatedly reverse, levels of support and resistance can be identified.

What is Point and Figure? • 17

How Does This Help Time-Oriented Charting? Support and resistance levels have always been subject to interpretation. Ten people can look at a chart and plot ten different levels of support and resistance. While there would almost definitely be places they agreed on, the exact values would differ and no two would be exactly alike. With Point and Figure, these levels become much clearer. Additionally, Point and Figure charts have their own pattern formations. These patterns, while similar to the bar chart patterns of the same name, have differences. Again, they are easily defined and easily recognized. Unlike bar chart patterns, which use approximations for retracements and percentage moves, Point and Figure patterns are precise. A column will be a set amount higher or lower than a previous column or columns. These mathematically precise definitions allow for:

18 • What is Point and Figure?

•

Easier referencing in formulas

•

Explorations looking for the patterns

•

Trends to be defined by the relationship of the prices to the support and resistance levels

•

Multiple scenarios in system study and development.

Point and Figure Patterns

This toolbox was written to search for nine specific patterns: •

Double Top

•

Double Bottom

•

Bullish Signal

•

Bearish Signal

•

Triple Top

•

Triple Bottom

•

Bullish Triangle

•

Bearish Triangle

•

Bearish Signal Reversed

When found, the expert advisors place a buy or sell arrow on the bar which finishes the pattern. The actual pattern is not highlighted or otherwise marked on the chart. However, the descriptions below should help you identify them.

Double Top In Point and Figure, a double top is defined as a column of X’s rising to the same level as the previous column of X’s and then exceeding it. This is a bullish signal as the prices have just broken a level of resistance.

Point and Figure Patterns • 19

Looking at the chart, you will see that the prices climbed to a certain value and then stalled. They fell back and then started to climb again. When they reached the level at which they stalled the last time, the prices continued to climb higher. The implication is that prices should continue moving upward. In practice, this signal is very common and does not always yield good results. Securities forming this pattern should not be ignored, but stops are especially important when trading with this pattern.

20 • Point and Figure Patterns

Double Bottom A double bottom is created when a column of O’s falls to the same level as the previous column of O’s and then drops even lower. This is a bearish signal as the prices have just broken through their previous support.

Looking at the chart, you will see that the prices dropped to some value and stopped. They rallied and climbed for a while and then started to fall again. When they reached the level at which they stopped last time, the prices continued to drop. The implication is that prices should continue falling. In practice, this signal is very common and does not always signal good trades. Do not ignore this pattern, but look for confirmation signals and check your stops.

Bullish Signal The bullish signal is a special form of the double top pattern. In addition to the second column of X’s rising above the first, the column of O’s between them has to find support at a higher level than the previous column of O’s.

Point and Figure Patterns • 21

Looking at a bar chart, the prices fell to some level and established support. As they rebounded, the prices moved upward until they encountered resistance. When they fell, support was found at a higher level than was previously established. Rising again, they climbed past the resistance previously encountered. This pattern incorporates rising lows with higher highs. Like the standard double top, the implication is that prices should continue rising. However, unlike double tops, this pattern has some additional confirmation built in. This pattern is fairly common and is a better signal than normal double tops. As with all trades, stops are important.

Bearish Signal The bearish signal is a special form of the double bottom pattern. Like double bottoms, the second column of O’s must fall below the first. In addition, the second column of X’s must not rise as high as the previous column of X’s.

22 • Point and Figure Patterns

Looking at a bar chart, the prices climbed until resistance pushed them back down. As they fell, the prices encountered support and began to move upward again. This time, resistance was found sooner and the prices were forced downward again. As they fell, the previous support was insufficient and they continued to fall. Like the Bullish Signal, this pattern includes a confirmation of the movement. Resistance is pushing the prices lower at the same time as the previous support level fails. The implied downward movement of the prices should continue. Set stops and watch your exit conditions.

Triple Top The triple top pattern further refines the criteria of the double top. The last three columns of X’s are examined. The first and second must rise to the same point and the third must extend past them. Occasionally, the bullish signal pattern is contained inside the triple top pattern, in which case the first column of O’s will reach lower than the second.

Point and Figure Patterns • 23

Looking at the chart, the prices would rise twice, only to encounter resistance. When they rose the third time, the prices would pierce this resistance and continue upward. This pattern is a strong buy signal as the resistance level is more firmly established. Theoretically, there could be quadruple tops or even longer patterns. However, these additional columns only serve to further reenforce the level of resistance. The more strongly this is established, the more significant the breakthrough is. Practically, a pattern longer than a triple top is rarely seen. That said, when a triple top occurs, if an inspection of the chart shows the resistance level to have been around for more than this pattern identifies, it should serve to further verify the signal. Still, be sure to place appropriate stops.

Triple Bottom The triple bottom formation is an extended version of the double bottom pattern. The last three columns of O’s are compared. The first and second must find support at the same level. The last column must fail to find the same support and move further downward. Occasionally, the bearish signal pattern is incorporated into the triple bottom pattern. This would require the most recent column of X’s to have a lower high than the previous column.

24 • Point and Figure Patterns

Looking at a bar chart, the prices would find support at some level, rise and then fall to the same support level. When they move lower a third time, this support would be insufficient and the prices would continue to fall. This is strong sell signal. After establishing support and confirming it in the previous two columns of O’s, its failure to hold on the third approach is much more significant. If an examination of the chart shows this support level to have been set even earlier, the signal is further validated. If the bearish signal is also represented, it underscores the importance of this pattern. Still, do not neglect setting appropriate stops.

Triangles This pattern requires 5 columns to form, but can be longer. It consists of both X and O columns shrinking until the prices finally break out. Below is an example of a bullish triangle. Notice how the second X column encounters resistance before the previous column did. The second O column found support above the first. This narrowing continues until the last X column forms a bullish signal pattern by breaking out of the triangle pattern.

Point and Figure Patterns • 25

The bearish triangle is shown below for comparison. Its pattern is nearly identical. Notice the second O column finds support sooner. In the same way, the second X column finds resistance before the first. This pattern is completed when the bearish signal forms as the support indicated by the second column of O’s is broken.

Looking at a bar chart, the narrowing of the support and resistance levels could be observed. The highs and lows of the price movements would draw closer and closer. This is sometimes referred to as congestion. This closing of competing support and resistance levels forms a pressure cooker in which the prices eventually explode outward. It is not within the scope of this toolbox to predict which way the price will go, but breakouts from triangles usually have exceptional strength behind them. The tighter the apex of the triangle, the stronger the breakout should be. Set stops just in case unexpected news or other actions negate the strength of this move. 26 • Point and Figure Patterns

Bearish Signal Reversed This is the longest pattern included in this toolbox. It is not so much one pattern as it is the combination of four separate patterns. The bearish signal reversed starts with a normal bearish signal. As the prices move downward, a second and then a third bearish signal pattern are formed. Each bearish signal is in sequence with the last bar of one being the first bar of the next. Then a double top is made off the column of X’s in the last bearish signal.

The strength of this pattern is in the sudden and strong movement against the prevailing trend. The prices are consistently making lower lows and lower highs. Then, they suddenly surge upward breaking through the last resistance level. This pattern can be watched as it forms. Until the double top is formed, the consecutive bearish signals only serve to confirm each other and the prevailing trend. When the double top is formed, expect the prices to move. Set stops to lock in your profits and to protect against sudden reversals, but this signal is usually worth waiting for.

Point and Figure Patterns • 27

Point and Figure Trendlines

Trendlines are a standard feature of technical analysis. They are used to identify trends and mark support and resistance levels. On bar charts and other time-oriented price styles, a trendline is drawn between any two points. Point and Figure charts only use flat horizontal lines and fortyfive degree angle lines. This toolbox addresses the forty-five degree trendlines. Typically, these are drawn by picking a peak or trough and starting the line in middle of the box just above or below that column. The next point is found by moving over one column and up or down one box. The line is then drawn connecting these two points. This process is repeated for as many columns as the line is desired. For illustration purposes, below is a sample chart using # where the line would be drawn:

A matching trendline is usually drawn on the opposite side of the column. When the prices break through a trendline, a new trend is starting and the lines are then redrawn to reflect the new trend. Therefore, with Point and Figure, you can get both the short-term trend from the column and the long-term trend from the trendlines.

Point and Figure Trendlines • 29

How to Use the Point and Figure Tools

The Indicators ** P & F Values ** IMPORTANT: This indicator is very important to all Point and Figure Toolbox formulas. Do not delete or rename this indicator. It is referenced by all other Point and Figure formulas. If this indicator is deleted or renamed, the other Point and Figure formulas will not work until it is restored. This indicator contains several short lines of text, which set the default values for the box size, reversal amount, the data array to use, and the trendline threshold. If you wish to adjust the Point and Figure parameters used by other toolbox formulas, you should edit this indicator. If you do, you will see the following text: data:=0; { setting data to 0 uses the High Low range } box:=1; reversal:=3; threshold:=2; The values after the equal sign can be changed and then saved. For example, if you wanted to change the box size from 1 to 0.5, you could do so. The formula would then look like this:

How to Use the Point and Figure Tools • 31

data:=0; { setting data to 0 uses the High Low range } box:=0.5; reversal:=3; threshold:=2; Please note that the semicolon at the end of the line was not changed. This semicolon is required by the MetaStock formula language and cannot be removed, or the formula will no longer work correctly. The value on the data line is the price data using in calculating the Point and Figure formulas. This should be set to the same setting selected in the Point and Figure properties window. If this is different, the formulas will not match the MetaStock chart Finally, do not add this indicator to a chart as it will not plot anything. The other indicators and their uses are described below. If this indicator is deleted or otherwise lost, it can be restored by manually re-typing it: 1.

Open the Indicator Builder

2.

Click New

3.

Type in the following text for the name: ** P & F Values **

This must be entered exactly as listed above, with no extra spaces before or after the name 4.

In the formula window, type in the five lines of code listed above. Capitalization does not matter here. Just make sure the punctuation is exact.

5.

Click OK. If everything is entered correctly, the indicator editor will close.

32 • How to Use the Point and Figure Tools

P & F Current Box When plotted in a chart, this indicator graphically shows the current value of the box last drawn on a Point and Figure chart. This is useful in overlaying a Point and Figure analysis on other price styles. It can also be used to gauge how close the prices are to a reversal. P & F New Column This indicator plots a flat line with a spike where a Point and Figure chart has switched to a new column. If either of the Point and Figure Expert Advisors is attached, this indicator is not needed. It is included as an alternate way to identify these switching points. P & F Resistance Trendline This plots the resistance level for the Point and Figure chart. It is normally used with the P & F Support Trendline indicator. It automatically adjusts itself to changes in trends or breakouts of the current trend channels. A breakout requires the prices to move the threshold amount outside the current trend channel. P & F Support Trendline This plots the support level for the Point and Figure chart. It is intended to be used in conjunction with the P & F Resistance Trendline indicator. The indicator adjusts to reflect trendline breakouts. A breakout requires the prices to move the threshold amount outside the current trend channel. The support and resistance trendline indicators require one more comment. These indicators adjust to reflect breakouts. On a Point and Figure chart, this means that after a breakout, the indicator will position itself at the high and low of the column that triggered the breakout. On other price styles, this adjustment is more dramatic. The new level of support and resistance is drawn for all dates contained within the column. This means that the past bars, potentially weeks of data, will have the support and resistance lines redrawn. For this indicator to plot correctly in a Point and Figure chart, all dates within a given column must have the same value. This rule necessitates the re-drawing of the trendline. Other arguments for this action exist, but the stated one is predominant. Warning of this change is mentioned here to prevent any confusion when this happens. P & F Trend This indicator doesn’t plot anything until the toolbox detects a trend. A trend requires at least 5 columns of Point and Figure data. Once a trend is detected, the formula plots either a 1 for a bullish trend, or a -1 for a How to Use the Point and Figure Tools • 33

bearish trend. This trend calculation is based on the breakouts of the support and resistance indicators. Just as they adjust for breakouts, this indicator also changes the recent historical values to reflect a change in the trend. P & F 45 Down For this indicator to work properly, please use the following procedure: 1.

Change the chart to a Point and Figure chart

2.

Making sure the chart style properties match the values in the “** P & F Values **” indicator.

3.

Open the Data Window (in the View menu, select Data Window).

4.

Locate the place where you want the trendline to start and position your mouse over that column.

5.

In the data window, note the date it displays and the box values.

6.

Now plot the indicator in the same window as the prices.

When it is plotted in your chart, you will get the following window:

7.

In the first three boxes, enter the date from the starting column.

8.

Set the value of the box you want the line to start at, usually 1 box above or below those listed in the Data Window.

9.

Clicking OK, the trendline will be plotted in your chart, looking something like the chart below.

34 • How to Use the Point and Figure Tools

It may take some practice to correctly anchor the starting point. After the trendline is plotted in the chart and looks correct on the Point and Figure chart, you can change the chart back to your chosen price style. The trendline will be carried over to the new price chart and plot the values corresponding to the Point and Figure chart. In a time-based chart, this will resemble a series of stair steps as seen in the chart below.

How to Use the Point and Figure Tools • 35

P & F 45 Up For this indicator to work properly, please use the following procedure: 1.

Change the chart to a Point and Figure chart

2.

Making sure the chart style properties match the values in the “** P & F Values **” indicator.

3.

Open the Data Window (in the View menu, select Data Window).

4.

Locate the place where you want the trendline to start and position your mouse over that column.

5.

In the data window, note the date it displays and the box values.

6.

Now plot the indicator in the same window as the prices.

When it is plotted in your chart, you get the following window:

36 • How to Use the Point and Figure Tools

7.

In the first three boxes, enter the date from the starting column.

8.

Set the value of the box you want the line to start at, usually 1 box above or below those listed in the Data Window.

9.

Clicking OK, the trendline will be plotted in your chart, looking something like the chart below.

It may take some practice to correctly anchor the starting point. After the trendline is plotted in the chart and looks correct on the Point and Figure chart, you can change the chart back to your chosen price style. The How to Use the Point and Figure Tools • 37

trendline will be carried over to the new price chart and plot the values appropriate to the Point and Figure chart. In a time based chart, this will resemble a series of stair steps.

The Explorations Four explorations are provided for Point and Figure trading. Please note, The Point and Figure Toolbox does not require a set number of records. Since Point and Figure is not time based, it is not possible to say how much data will be needed for a chart to show several columns of data. However, if you load at least 500 records, the explorations provided with this toolbox will perform better. P & F Pattern Search This exploration is designed to scan through a group of securities and return a list of those which have just formed a new pattern. The report is divided into five columns. The first four report bullish (buy) and bearish (sell short) versions of the signal. If either is found, the list shows a 1 in the respective column for buy signals and a -1 for sell signals. The last column is always a buy signal and will display a 1 when this is true. If a 38 • How to Use the Point and Figure Tools

column does not have a buy or sell signal for its pattern, it shows a 0. Below is a sample report from this exploration.

P & F Recent Patterns This exploration gives the same report as the P & F Pattern Search exploration. The difference is that this exploration looks for any signal within the last 10 trading days. If a longer lookback period is desired, this exploration can be edited and the number changed. To change the lookback, open The Explorer, click on this exploration and then click Edit. The lower half of the Explorer Editor has seven tabs labeled columns A through F and Filter. Column A is selected by default. The first line in each of the columns A through E is the text: days:=10; Change the number 10 to the desired number of trading days you want included in this scan. For example, if you want the exploration to only look at 5 days, change this line to: days:=5; Make sure the semicolon remains at the end of the line. After making the change in column A, click the tab for column B and repeat the process. Make the same changes to columns C, D, and E. After changing column E, click OK. If all the changes were made correctly, the Exploration Editor will close. The modified exploration is now ready for use. How to Use the Point and Figure Tools • 39

P & F Status Report This exploration is designed to scan through a list of securities and report the current column, the current box, the trend (if any), and the support and resistance values of that trend. Both the column and the trend are identified by either a 1 (if the security is in an up trend or an X column) or a -1 (when the security is in a down trend or an O column). P & F Watchlist Maker This exploration allows you to refine your list of securities to increase the validity of the Point and Figure signals. Many Point and Figure chartists believe a box size of 1 is only valid when the prices are between 20 and 100. If a security’s price moves outside that range, then the box size should be adjusted up or down to compensate and retain valid signals. Since MetaStock can only use 1 box size for the whole chart, this exploration looks for securities whose price is between 25 and 100. Since prices tend to fall faster than they rise, an extra buffer of 5 points was added to the bottom range. This exploration also filters out securities with less than 500 periods and whose Point and Figure chart contains less than 5 columns. The resulting list contains securities whose price action is sufficient to generate the buy and sell patterns.

The Expert Advisors P & F Full Commentary This is the main Expert Advisor provided with the Point and Figure toolbox. It is designed to be used on time based chart (Open/High/Low/Close bars, candlesticks, etc). The expert colors the price bars blue or red to show where a point a figure chart would be drawing a column of X’s or O’s. Symbols are placed on the chart to show the completion of Point and Figure patterns, and a commentary gives some suggestions on how to approach these signals. This Expert Advisor is not intended to be used with a real-time chart. The commentary is calculation intensive and can dramatically slow down a system when used on a live chart. P & F Short Commentary This Expert Advisor colors the price bars and adds symbols to charts the same as the P & F Full Commentary expert. However, its commentary is just a status screen and makes no mention of Point and Figure patterns. 40 • How to Use the Point and Figure Tools

This allows it to display the commentary significantly faster.

The System Tests The Point and Figure Toolbox does not require a set number of records. Since Point and Figure is not time based, it is not possible to say how much data will be needed for a chart to show several columns of data. However, if you load at least 500 records, the system tests provided with this toolbox will be more likely to find the Point and Figure patterns. P & F Pattern System This system searches for triple tops, triple bottoms, bearish and bullish triangles, bearish and bullish signals, and bearish signal reversed patterns. When one of these is found, a trade is taken and then held until the prices draw near the appropriate trend channel line and then pull back. That is, long trades are held until the price moves to the resistance line and then start to fall. Short trades are held until the prices have dropped near to the support line and then start to climb. The double top and double bottom patterns were not included in this test. These patterns are more common and the moves are often shorter. P & F Pattern System w/ opt This system is the same as the P & F Pattern System, except it optimizes the box size and reversal amount. In all other respects, it is the same. If the results of the optimization over a large group of stocks are to your liking, you can edit the “** P & F Values **” indicator and input the numbers derived by the optimization. This would change all the explorations, experts, and indicators to use these new values.

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How to Write Your Own Point and Figure Formulas

The Point and Figure Toolbox provided with MetaStock 9.0 allows a formula to get one of six different values about Point and Figure charts. The first three are factual values: the current column (X or O), the value of the current box in the current column, and whether or not a new column just started. The second set of three are a calculation of the current support and resistance trendlines and the direction of the trend. All six queries can be done in any MetaStock formula and can be combined to create practically any Point and Figure based formula desired. The format is the same for all six functions: ExtFml("PointFig.pointfig", DATA ARRAY, BOX SIZE, REVERSAL AMOUNT, THRESHOLD VALUE, RETURN VALUE ) DATA ARRAY – The data the Point and Figure chart is to be calculated on. Normally this will be the Open, High, Low, or Closing price. Point and Figure can also be calculated on the High – Low range, using the high when the price is going up and the low when the price is falling. If you want to use the High – Low range, set the data value to 0. It should also be noted that any other value can be used here, such as the Stochastic Oscillator, a moving average or even some other security’s data. BOX SIZE – The box size used in creating the Point and Figure chart. This can be any positive number. REVERSAL AMOUNT – The number of boxes required for a reversal. This can be any positive integer. THRESHOLD VALUE – The number of boxes the trendlines must be penetrated by to trigger a trendline breakout. This can be any positive integer. RETURN VALUE – Identifies which of the six Point and Figure values you wish to use. Enter either the short or long name. The function will return the corresponding value. These values are summarized in the following table: How to Write Your Own Point and Figure Formulas • 43

The individual return values are further explained below. Each example shows the formula to get the Point and Figure information for a chart created using the values in the “** P & F Values **” indicator.

Current column Formula: data:= FmlVar("** P & F Values **","DATA"); box:= LastValue(FmlVar("** P & F Values **","BOX")); reva:= LastValue(FmlVar("** P & F Values **","REVERSAL")); thresh:=LastValue(FmlVar("** P & F Values **","THRESHOLD")); ExtFml("PointFig.pointfig",data,box,reva,thresh,c ol) This returns either a 1 or a -1 depending on which column the chart is currently displaying. If the Point and Figure chart is currently in an X column of ascending prices, this returns a 1. If the chart is in an O column of descending prices, this function returns a -1.

Column change Formula: data:= FmlVar("** P & F Values **","DATA"); box:= LastValue(FmlVar("** P & F Values **","BOX")); reva:= LastValue(FmlVar("** P & F Values **","REVERSAL")); thresh:=LastValue(FmlVar("** P & F Values **","THRESHOLD"));

44 • How to Write Your Own Point and Figure Formulas

ExtFml("PointFig.pointfig",data,box,reva,thresh,r ev) This function normally just returns the value zero. However, on the period that triggers a reversal, this function returns a 1.

Current box Formula: data:= FmlVar("** P & F Values **","DATA"); box:= LastValue(FmlVar("** P & F Values **","BOX")); reva:= LastValue(FmlVar("** P & F Values **","REVERSAL")); thresh:=LastValue(FmlVar("** P & F Values **","THRESHOLD")); ExtFml("PointFig.pointfig",data,box,reva,thresh,b ox) No matter what data is charted, it is always calculated as being in a specific box. The box is a multiple of the box size. This means that if you use a box size of 2, the prices are always in a box whose value is evenly divisible by 2. (i.e.: 2, 4, 6, 8, etc). This function returns the value of that box.

Trend direction Formula: data:= FmlVar("** P & F Values **","DATA"); box:= LastValue(FmlVar("** P & F Values **","BOX")); reva:= LastValue(FmlVar("** P & F Values **","REVERSAL")); thresh:=LastValue(FmlVar("** P & F Values **","THRESHOLD")); ExtFml("PointFig.pointfig",data,box,reva,thresh,t nd) Trend is a general term used to describe a prevailing direction of the How to Write Your Own Point and Figure Formulas • 45

prices. The columns of a Point and Figure chart describe the short term price moves, or trend. However, a general up or down move that persists over several columns is more significant. This function attempts to detect and quantify these moves. It returns a 1 if the automatic support and resistance lines are trending up, and a -1 if these lines are trending down.

Resistance Formula: data:= FmlVar("** P & F Values **","DATA"); box:= LastValue(FmlVar("** P & F Values **","BOX")); reva:= LastValue(FmlVar("** P & F Values **","REVERSAL")); thresh:=LastValue(FmlVar("** P & F Values **","THRESHOLD")); ExtFml("PointFig.pointfig",data,box,reva,thresh,t op)+(.5*box); This returns the value of the box for the top line of the trendline channel. The formula adds an extra half box size for display purposes in Point and Figure charts. The extra half box size results in the line being drawn through the middle of the box above the X columns instead of the top edge of the column.

Support Formula: data:= FmlVar("** P & F Values **","DATA"); box:= LastValue(FmlVar("** P & F Values **","BOX")); reva:= LastValue(FmlVar("** P & F Values **","REVERSAL")); thresh:=LastValue(FmlVar("** P & F Values **","THRESHOLD")); ExtFml("PointFig.pointfig",data,box,reva,thresh,b ot)-(1.5*box); This returns the value of the box for the bottom line of the trendline 46 • How to Write Your Own Point and Figure Formulas

channel. The formula subtracts one and one half box sizes for display purposes in Point and Figure charts. This shift moves the line to the middle of the box below the O columns instead of the top edge of the column.

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