I recently put together a video explaining how Point & Figure charting can be useful to any trader or investor. P&F charts eliminate small price movements, and help us focus on the most significant price changes and trend developments. As such, they can help us stay with the stronger trends, as a lot of small counter-trend movements are filtered out. They also help us identify breakdowns that may result in more significant trend changes. As such, they help to confirm signals provided by traditional charts in an effort to avoid false breakouts.
I don’t use P&F charts by themselves. The price changes needed to identify breakouts and breakdowns are less sensitive than traditional charting – and markets move quickly these days. However, I do like to refer to P&F charts when trying to ascertain the viability of a bigger trend potential. For example, I used P&F charts recently to try and determine if the rally we got in late June/early July was to be trusted. As I explain in the video, the reversal rule used in my P&F chart did not trigger a buy signal, which kept me cautious and in cash. So far, the SPX has remained below its resistance point of near 3900 since posting the video.
I do not use P&F charts to trigger trades – but I do find the basic P&F trend and reversal signals to be valuable input when combined with the more traditional charting I employ. Here is the video: Understanding Point & Figure Charting – ValueTrend