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Point and Figure 201

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In our last session we talked about P&F basics and how to draw a chart. We discussed the importance of the box size and the reversal amount and setup a couple of examples to show how these two P&F Attributes are used.

I would now like to show you how to draw support and resistance trend lines on a P&F chart.

P&F trend lines are simple tools to help you determine areas where buyers are willing to support the price of a stock by buying - support, and areas where the supply tends to take over - resistance. There are only four types of trend lines used in Point and Figure Charting. They are:

Bearish Resistance Line
Bearish Support Line
Bullish Resistance Line
Bullish Support Line


I have decided to continue to use the GE example from last week because it shows better trending than does INTC. Here is GE's P&F chart.


The Bearish Resistance Line

A Bearish Resistance line shows where we expect stocks to meet selling pressure. Stocks trading below the Bearish Resistance Line are not good candidates for purchase.

To build the Bearish Resistance Line work your way from left to right, look for the highest column of Xs. I will use a plus sign '+' to mark the Line. Starting at the $58 box, I will add one '+' move over and down one box, and add another '+'. Continue this process until the line is pierced with a row of Xs, which is a break of the bearish resistance trendline and tells you demand is starting to overtake supply. Here is how the Bearish Resistance line will look.

The Bearish Support Line

The Bearish Support Line runs parallel to the Bearish Resistance Line, but below it. Notice the angle of the Bearish Support Line and the Bearish Resistance line are the same. A Bearish Support line shows where we expect stocks to see the selling pressure easing.

To create the Bearish Support Line working your way from left to right start with the lowest column of Os. I will use a plus sign '+' to mark the Bearish Support Line. Starting at the $47 box, add one + then move over and down one box, and add another +. Continue this process until a row of Os pierces the line, which is a break of the bearish support line. This is the most bearish of all scenarios but could also be capitulation and the stock is starting a process of making a bottom.

Notice that several specific events need to occur before we can draw a Bearish Support Line and Bearish Resistance Line with certainty. Obviously, you need a column of higher Xs, indicating buying pressure. To the right of this column of Xs, you also must have multiple columns of Xs that do not make a higher highs indicating that the buying pressure is easing. Next you must have a column of Os indicating that selling pressure is starting to exert itself then multiple columns of lower Os demonstrating selling pressure is increasing.

To show you how to draw the Bullish Support and Resistance lines I would like to use last 8 columns on the GE chart. Here is a blow-up of those last few lines.

Bullish Resistance line

A Bullish Resistance line shows where we expect stocks to see easing of buying pressure.

For the Bullish Resistance line, working from left to right start at the highest column of Xs and place a '+' then move over one column and up one row. In this example I will place a '+' in the 32 box move over one column and up one row to place another '+'. Continue this process until a row of Xs pierces it and breaks resistance, which is the most bullish of all scenarios but could also be the beginning of a topping process.

Bullish Support line

The Bullish Support Line runs parallel to the Bullish Resistance Line, but below it. Notice the angle of the Bullish Support Line and the Bullish Resistance line are the same. A Bullish Support line shows where we expect stocks to see the buying pressure increase. Stocks above the Bullish Support line are good long candidates.

Working your way from left to right, start at the lower most column of Os and place your first '+'. Starting with the box at 20 place a '+' then move over one column and up one row and place the next '+'. Continue this process until a row of Os pierces it and breaks support.

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Notice that several specific events need to occur before we can draw a Bullish Support Line and Bullish Resistance Line with certainty. Obviously, you need a column of higher Xs, indicating buying pressure. Then to the right of this column of Xs, you also must have multiple columns of Xs that make higher highs indicating that the buying pressure is increasing. Next you must have a column of Os indicating that selling pressure is exerting itself then multiple columns of higher Os demonstrating decreasing selling pressure.

Once a support or resistance line has been broken you need to start over again from where the last trendline ended off and work you way from left to right to start building the next trendline.

Let's look at another example. Here is the P&F chart for AIG with the trendlines drawn in by Stockcharts.com. For some reason StockCharts does not draw the bullish and bearish channels - both support and resistance lines. I suspect that it clutters up the chart too much and you may miss the true essence of P&F with too many lines. Or it could be that the Bearish Resistance and the Bullish Support lines are the more important trendlines for when these are broken it usually means the stock is changing from bullish to bearish or vice versa.


Start with the first blue bullish support line. Here is how we draw the line - "Working your way from left to right, start at the lower most column of Os and place your first '+'. Then move over one column and up one row and place the next '+'. Continue this process until a row of Os pierces it and breaks support."

While AIG was above this support line it is bullish and your first hint that the bullishness is in trouble is when the Red Bearish Resistance line starts to form showing us that supply is starting to overtake demand. Here is how we draw the Bearish Resistance line - "Work your way from left to right, look for the highest column of Xs, add one '+' move over and down one box, and add another '+'. Continue this process until the line is pierced with a row of Xs."

The Bearish Resistance line starting to form only means bulls beware but it is yet not time to bail. It is time to bail and look for new long candidates when the Bullish Support line is pierced by a column of Os meaning that supply has overtaken demand and AIG has now become bearish. I have marked this column with a magenta arrow.

Now the bears are in control and supply of overwhelming demand but it is also time to start watching for signs of bullishness creeping in. That happens when the next Bullish Support line starts to form and AIG's complexion changes from bearish to bullish when the Bearish Resistance line is pierced by a column of Xs (marked with the 2nd magenta arrow). Demand is overwhelming supply and AIG is bullish.

AIG remains bullish for quite some time but of course stocks ebb and tide and eventually supply will overtake demand. Fortunately the P&F chart will alert us as soon as this happens when you see Bearish Resistance line starting to form and/or the Bullish Support line is broken (marked with the 3rd magenta arrow).

Point and Figure charts provide a very good visual for determining whether a stock (or index) is bullish or bearish. Stocks are bearish if price is under a Bearish Resistance line and bullish if above a Bullish Support line. Then P&F charts also informs you when the tide is changing and when to bail on a bullish or a bearish position.

The next article will cover double tops and bottoms, triple tops and bottoms, catapults and triangles.

Until then, remember trade your plan and plan your trade.


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