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The history of Point & Figure

From hand-written figure charts in the 1890s to live charts today.

Point & Figure is one of the oldest charting methods still in use. It was born on the trading floors of the 1890s, before computers, before candlestick charts were known in the West, and before most of the indicators traders use today. More than a century later, its rules are almost unchanged.

Before the X's: figure charts

The method began as a way of keeping records. Traders of the late 1800s watched prices come across the ticker tape and wrote them down in columns, adding a new figure each time price moved by a whole point. When the direction changed, they moved to the next column. Over time they noticed that the patterns in these columns repeated, and that they could be used to anticipate what price might do next.

Because the records were written in numbers, they were first called "fluctuation charts" and then "figure charts."

Where the name comes from

Eventually traders began writing an X in place of each number. These simpler records became known as "point charts," since each mark stood for a one-point move. Traders kept both kinds side by side and referred to them together as their point and figure charts. According to P&F historian Jeremy du Plessis, that's the most likely origin of the name.

Charles Dow and the 1890s

The method is often linked to Charles Dow, creator of the Dow Jones Industrial Average and the first publisher of The Wall Street Journal. Some accounts credit him with inventing it; others say only that he and his contemporaries promoted it. What is clear is that figure charting was in use among traders in the 1890s, the same era in which Dow was laying the foundations of technical analysis.

The first published reference: 1898

The earliest known appearance of the method in print is in The Game in Wall Street, and How to Play It Successfully, published in 1898 under the pen name "Hoyle." The book included examples of figure charts, making it the first documented record of the technique.

Wyckoff and the tape readers: 1910s

Richard D. Wyckoff, one of the most influential market educators of the early 20th century, described the figure chart technique in his 1910 work Studies in Tape Reading.

The first dedicated book: 1933

In 1933, Victor de Villiers published The Point and Figure Method of Anticipating Stock Price Movements, the first book devoted entirely to P&F charting. It included a chart of the 1929 crash. A later edition was written with Owen Taylor, and the book is still in print as Devilliers and Taylor on Point and Figure Charting.

Chartcraft and the 3-box reversal: 1947

The method as most traders know it today took shape in 1947, when A.W. (Abe) Cohen published How to Use the Three-Point Reversal Method of Point & Figure Stock Market Timing. Two lasting changes came from Cohen's work:

• The 3-box reversal. Price had to reverse by three boxes before a new column began. This filtered out much of the noise of a 1-box chart, and became the standard used for nearly all P&F analysis since.
• The high-low method. Cohen's book introduced plotting from each day's high and low, rather than from every intraday price, which made it practical to keep charts from a daily newspaper.

Cohen founded Chartcraft, which published P&F charts and research on thousands of stocks and did more than any other firm to popularize the method in the United States. Chartcraft's team also created the traditional box-size scale that's still the standard for daily charts. Chartcraft later published books by Michael Burke, Carroll Aby and Kermit Zieg, and continues today as Investors Intelligence.

The Bullish Percent Index: 1955

In 1955, Cohen applied P&F to the market as a whole. He counted how many stocks on the New York Stock Exchange were on P&F buy signals and created the NYSE Bullish Percent Index. It remains one of the best-known measures of market breadth.

Wheelan and the 1940s and 1950s

Alexander H. Wheelan's Study Helps in Point and Figure Technique, first published in 1947, became another standard reference of the era. Through the 1950s and 1960s, P&F was a mainstay for professional chartists, who could maintain hundreds of charts with nothing more than a pencil, graph paper and the daily newspaper.

Michael Burke and Thomas Dorsey

Michael Burke joined Chartcraft in 1962 and learned the method under Cohen. He went on to train a new generation of practitioners, including Thomas J. Dorsey.

Dorsey co-founded Dorsey, Wright & Associates in 1987 and published Point & Figure Charting: The Essential Application for Forecasting and Tracking Market Prices in 1995. The book, now in its fourth edition, introduced P&F to a new generation of traders and advisors and is still one of the standard references. Dorsey Wright also made relative strength analysis on P&F charts central to its work. In 2015, Nasdaq agreed to acquire the firm, and P&F-based relative strength strategies came to underpin a range of index funds.

The computer era

For most of its history, P&F was drawn by hand. That began to change in the 1960s, when Chartcraft used an IBM System/360 computer to produce its charts. In the early 1980s in the United Kingdom, du Plessis's company Indexia automated P&F charting so that hundreds of charts could be drawn and changed in seconds. Around the same time, percentage (logarithmic) box scaling was developed, keeping a chart equally sensitive at any price level. In the United States, Perry Kaufman and Kermit Zieg documented their research into computerizing P&F.

Du Plessis's The Definitive Guide to Point and Figure, published by Harriman House and revised in 2012, became the standard modern text on both the history and the computerized practice of the method.

P&F today: live charts

For most of its history, a P&F chart was updated once a day at best. Today, with real-time market data, a P&F chart can be updated on every trade, and a Triple Top breakout can be spotted the moment it happens rather than the next morning. The tools have changed completely. The rules Cohen set down in 1947 have not.

A timeline

Sources

• Point and figure chart, Wikipedia
• Introduction to Point & Figure Charts, StockCharts ChartSchool
• Point and Figure Chart: History
• Bullish Percent Index, The Trading Tools
• Tom Dorsey, Nasdaq
• Nasdaq to acquire Dorsey, Wright & Associates, GlobeNewswire, January 2015
• Century-Old Tic-Tac-Toe Stock Charts Rake in ETF Billions, Bloomberg, April 2015
• Point and Figure Charting (1995), Open Library
• Devilliers and Taylor on Point and Figure Charting, Harriman House

For education only. Nothing here is investment advice or a recommendation to buy or sell any security.