How To Draw
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 high/low method was invented by A.W. Cohen in his 1947 book, 'How to Use the Three-Point Reversal Method of Point & Figure Stock Market Timing' and has a large following.
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.
Read more about this topic: Point And Figure Chart
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