Point and figure construction.

De Villiers, Classic, Chartcraft and modern methods

This point and figure software provides the tools for detailed and advanced point and figure charting. Free trial download available. This is the program used alongside GuppyTradersEssentials to add expert Point and Figure functions.

Point and figure - An explanation of construction methods

by Daryl Guppy

Point and figure charts can be constructed in several ways. Each way is correct and consistent with a particular approach. Its like using a moving average crossover. No single combination is absolutely correct, but there is a combination that suits your trading style.

    The market leaves plenty of room for interpretation and new approaches, and point and figure charting is not immune from progress. When I use point and figure charts I want to know how they are constructed so I can be confident that I am using a method that I am comfortable with. The various approaches fall into four main categories:

• One point charting for point and figure popularised by De Villiers in the mid 1930’s. It uses a 1 point box - that is $1.00, no fractions (p31) - and a 1box reversal. It was designed to track intra-day course of sales tape prices from the course of trades. End of day point and figure charting was based on 3 and 5 point charts (p32 De Villiers). Some people now use the intraday method for end of day charting.

• Classic point and figure, refined in the 1930’s and described by Wheelan. It is also the approach covered in my Classic Point and Figure Basics article in Stocks and Commodities magazine in 1997 and in my book Share Trading. It uses a variable box size and a 3 box reversal. This is the method used in Ezy Chart.

• The Chartcraft approach developed in the 1950’s and popularised by Dorsey in the 1990’s. Variable box size and 3 box reversal.

• Modern point and figure developed in the 1990’s by Caroll Abby and others. This includes using point and figure on volume relationships, basing calculations on logarithmic displays and other innovative variations. Variable box size, and variable reversals.

    Each of these approaches has a ‘correct’ way of calculating the position of the X’s and O’s on the chart display. Each of these approaches can be used to successfully trade the market. No single one of these approaches is absolutely correct, despite some claims to the contrary.

    The differences between the approaches fall into two areas:

• Which price element is used for the calculation- the close, the high, the low, or some combination of these.

• The treatment of one box reversal moves.

    How significant are these differences? We start with differences in display before moving onto differences in construction. The charts below all use the same base information, but they have been constructed in different ways. We start with the basic bar chart shown in a weekly display so the period of action is captured. Our objective is to compare the price action shown as point A , B and C across the various different ways of plotting the data. In constructing the chart we use daily figures and the point a figure chart compresses these so the period shown in the bar chart is shown easily from a daily basis.


    Remember that the point and figure chart is not particularly useful for identifying the best day to exit. We use it to show when the exit, or entry, conditions exist. The actual entry or exit is more closely matched to activity on the bar chart.

    Starting with De Villiers style of point and figure construction we see that the chart does not significantly compress the price action. Because it is based on a 1 point box with a 1 box reversal all but the smallest price moves are recorded. It is useful to remember when applying this approach to end of day data that it was originally designed for intra day tick data.



    The classic construction method is used by Ezy Chart and is also available in the Metastock options. This construction method emphasises triangles and support levels by compressing the price action so only the most significant moves are shown. This is one of the advantages of this charting method.


    The Chartcraft approach also emphasises the significant chart patterns. The construction method tends to be bullish in rising markets and bearish in falling markets, and this can lead to contradictory chart patterns. Area A in this method shows a rising triangle with resistance based on the three highs of the bar chart.


    The chart shown in Figure 5 is not a good example of a modern approach to point and figure, but it does highlight the drive towards using point and figure to extract the underlying price action through the choice of price element, box size, reversal method and data scaling.


    A summary of the main features and differences shown by these various approaches is shown in the Table. The classic and chartcraft methods all achieve the objective of extracting the significant details about price direction. The development of the up sloping triangle in a compressed time scale is a feature of both. This chart pattern provides accurate triangle price projections for the subsequent breakout. The De Villiers chart shows an extended accumulation pattern. This is certainly what was happening with AUO, but the pattern by itself does not help the trader to decide when the breakout is likely, or to set the potential targets. Using this type of chart pattern as a breakout indicators has a 10% to 20% success rate. Triangle projection patterns have around 80% success rate so many traders favour construction methods that highlight these developments.



    The De Villiers, Classic and Chartcraft methods all have slightly different construction rules and this effects the way the significant price action is extracted. The differences between the approaches fall into two areas:

• Which price element is used for the calculation- the close, the high, the low, or some combination of these

• The treatment of one box reversal moves.

    The Classic method bases all calculations on the closing price. Many traders believe this is the most significant price for the day. The Ezy Chart point and figure display uses the closing price and it is a choice in the parameters dialog box with Metastock.

    The Chartcraft method uses either the high or the low, depending on the direction of price. On rising days the high range is used for the calculation. On falling days, the low range is used. This is the default setting for point and figure with Metastock and it is shown as high/low range. This tends to highlight bullish or bearish sentiment. The chart extract shown here had the price action at point A as a bullish up sloping triangle.

    For some people, the most contentious issue is the way one box reversals are treated and this is sometimes used to justify the claim that a particular charting program is the only one to handle it correctly. The De Villiers method mixes columns of X’s and O’s. Metastock and Ezy Chart do not allow this mixing, and in this way it is true to say that Metastock does not complete one point reversal charts correctly. The other point and figure construction methods have a simple rule: When price changes direction by the value of the reversal, then shift to the right on the chart and start a new column. As end of day point and figure is concerned to track the direction of price this construction rule is sound and logical. The full details of these classic construction rules are given in Share Trading. The differences between the two are shown in the chart extracts.



    Traders particularly interested in specific applications of point and figure will use charting software that allows them to manipulate the parameters, or which faithfully reproduces one particular method. Most traders find the classic construction method reliable and useful.

    There is no single correct way to construct a point and figure chart and traders should be wary of any such claims. What is important is that the construction method selected is consistent with the set of rules for that method. What is more important is that the method you choose should assist you in getting the best trading results possible. If your trading is based on end of day charting then the classic, chartcraft and 3 point De Villiers reversal methods have been designed for this style of trading.

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