I will honestly blame using point and figure charts together of those turning points in my trading career. Early in the day on because I studied the works of Richard Wyckoff, figure and point (P&F) graphs had been a staple of the trading strategy.
As I begun to define and refine my own trading strategies, I jumped far from P&F for longer sexy analysis methods like Elliott Wave and also candlestick patterns.
I soon realized that while some other investigation techniques made me feel complicated, it wasn’t adding many in terms of money to my account. As I continued to refine my trading methodology, oddly enough I landed back where I started – P&F charts.
Across the web you will find a number of articles and books on how to produce P&F targets. However, what I aim to do in this article is to not just give you the mechanics for how to perform a count, but to show you my exact settings for determining a benefit target. I will also provide real-life examples so you can see things in action.
- RMTI Long Position
- HWAY Short Position
Why perform P&F counts
I am a firm believer that the store will do whatever it wants to. So, it begs the question, why would I obtain in the business of attempting to predict or guesstimate where the store is headed?
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The simple answer to this question is that I seek to understand how far a share can run for the basis of calculating my risk versus reward for every trade I take on. This provides me the means to see before I enter a trade whether the share fits the criteria of my risk profile.
Where people obtain in trouble with targets (P&F, Elliott Wave, Gann, etc.) is when the trader begins to believe that the store must conform to his or her analysis. I have personally seen this lack of flexibility ruin otherwise would be great traders.
Methods for calculating P&F Targets
There are two primary methods for calculating P&F targets: (1) vertical and (2) horizontal. I will not be covering horizontal counts in this article because over time I have found this method unreliable.
Reason being when you have a significant consolidation range, determining which level and how many boxes to count can be challenging. While there are methods out there for properly determining which row to count, for me these methods lend themselves to too many subjectivity.
For an example of a horizontal count, down from is 1-box P&F chart of the share Rockwell Medical Technologies, Inc. (RMTI).
Where can you have left your flat urge?
Now, let’s go through exactly the similarly graph, however onto a 3-point change.
I don’t understand about you personally, but doesn’t give me the warm and fuzzies either. Now, let’s apply a vertical count to the similarly 3-point chart instead of horizontal.
We before all else identify the low of the chart which is $9.49 and we count the next column of x’s. The next column has a total of 13x’s. To find the P&F target, we take 13 x 3 (remember we are on a three point chart) which gives us a total of 39. We then count up 39 boxes from $9.49 to arrive at a cost target of $13.86.
With this additional level of clarity, let’s go back and look at the previous chart example to illustrate the count.
Simple as pie directly? I’m being facetious, but on some level it truly is simply that simple. You discover the high or low in a significant swing. Then you look into another location column of x ray ‘s or ‘s and choose that count intervals 3 to obtain your target by the swing point.
This in my experience is much many simpler than wanting to shoot horizontal P&F points or worst wanting to pinpoint what sub-wave we have been capable of an Elliott Wave design.
My Specific P&F Configuration Settings
Those of you comfortable with P&F counts are most likely saying to yourself, well fantastic job numbnuts, you were able to spell out perpendicular P&F counts.
You will be right at this announcement, so allow me to simply take it a step farther and present you my precise settings.
(1 ) Number of P&F boxes
- As mentioned before in the Guide I utilize a box count of 3 to Decrease the amount of mess onto the graph.
(two ) Vertical Count
- The perpendicular count Lowers the amount of subjectivity and a clear pillar of boxes to Ascertain a count.
- Vertical counts additionally lower the prospect of ripping way too many boxes which will create unrealistic P&F aims.
- I utilize exactly the percent and more especially 1 percent containers. This really is a important element for nailing the accuracy of a target. I used the conventional scale, which offered a fixed quantity of boxes because of amount grades. Which usually means that the P&F vertical increase in predetermined speed (.25,.5, 1) before a fresh low or high will be broken ($10, $100) after which your count goes into another location increment level upward.
The argumentation I enjoy proportions, is basically because it takes in to consideration the amount movement at every box degrees versus key amount levels at which the increments develop. Timeframe
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- I go through the 30-minute time for my P&F graphs. Intraday P&F graphs aren’t exactly the similarly as candlesticks or bar graphs. The graphs themselves remove moment by the equation, and all we do is grabbing more amount moves through your daytime, versus having an everyday interval where just a couple of amount inputs are utilised to figure the P&F. The old school way of making use of P&F was founded on using tick graphs, however for the reasons of my investigation, 30-minute gives me an ideal combination of staying near the amount actions, without depriving myself using fresh data.
For the most part numbers 1 through 3 must be quite common; nevertheless, no four is where I divide myself from the bunch. The vital inputs of working with a climbing way of proportions and the span of half an hour will supply you a degree of clarity in the store like the before all else time that you wear a couple of glasses (supposing you have a set ).
Now that we’ve covered how to build up P&F counts the theory is that, let’s look in some reallife examples.
RMTI Long Position
Going back into the RMTI place, I entered the trade at $10.17 on 2/5/2014. From that point, RMTI went apartment for a time of time working during its consolidation period. Once the share started to eliminate, I knew all roads would point out ~13.86 predicated on the P&F count.
Below is a graph of the way a cost action fundamentally performed.
I was able to close the share out slightly down from the P&F target for a 30 % gain on 2/14/2014.
I use to worry about why things happened and needed to know every single detail. I have reached a maturity level now where frankly I no longer care. Call it luck; call it divine intervention, P&F targets simply work.
I shouldn’t be flipid; P&F goals are the consequence of the struggle in the middle demand and supply key congestion parties. Once the amount can leave these consolidation arrangements, the ship count stipulates the consequent aim for that move.
HWAY Short Position
HWAY took me to get a Small ride. I placed the brief trade on 12/26/2013. I had been hungry for actions after I had been on a break and I experienced no firm setting the trade while the store has been at full holiday style.
Needless to state HWAY went above my entrance point of 15.43 and spanned north of 17. This procedure for letting HWAY tire outside the longs will have been excruciating if it weren’t for my trusty P&F count.
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One little ace up my sleeve was the P&F target for HWAY was $16.91. Please see the count in the down from chart:
So, you might well be asking just how did I understand $16.91 was that the aim? I knew this for a handful reasons:
(1 ) The P&F aim out of the 13.05 low was met ($15.93), hence another target could be the count coming from this trading range.
(two ) $14.71 has been the non of this consolidation selection. Out of this low there clearly was a 5-box vertical count in a 3 point graph upto $16.91.
I knew with a higher level of confidence which HWAY could face substantial resistance at $16.91. Because you can easily see from the graph, HWAY actually surpassed the P&F count marginally, just to after roll over.
Without knowing the potential reversal zone at $16.91, I would have had a tough time sitting through the position as the share initially moved against me.
Pros of P&F Counts
- Provides you a roadmap for where a store or share is likely headed.
- Serves as an alert to pay closer attention to your positions as key levels are hit.
- Helps determine risk reward parameters.
Cons of P&F Counts
- The counts are “goals “, remember the store can always go higher or lower.
- When determining counts, look back to see how closely a share has met these target levels. If the share has overshot targets in the past, it will likely do so in the future.
- You have to control the urge to find counts on multiple timeframes. This will cause analysis paralysis to set in. Just use one timeframe to ensure you do not cloud the technical picture.
The P&F settings discussed in this article are specific to my swing trading system. By using these settings I am able to achieve anywhere from 10% – 40% gains when taking into account my trade management program which calls for me to let my winners run.
As you explore the possibility of using P&F charts to determine amount targets you will want to take the following into account:
(1) Are you swing trading, day trading or long-term investing?
(2) What is the volatility of the shares you are trading? This will directly impact the validity of the P&F targets.
Continue to tweak your P& parameters until you find a system that gives you the most benefit on every trade.