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Reading X's and O's
What each column means and the few rules every chart follows.
A Point & Figure chart is built from vertical columns. Every column is either all X's or all O's, never a mix.
X columns: demand in control
A column of X's means price is rising. Each X is one box of upward movement. While buyers stay in control, X's keep stacking higher in the same column. The top of an X column is the highest price reached in that rally.
O columns: supply in control
A column of O's means price is falling. Each O is one box of downward movement. The bottom of an O column is the lowest price reached in that decline.
The rules every chart follows
- One direction per column. A column contains only X's or only O's.
- Columns alternate. An X column is always followed by an O column, and vice versa.
- A new column needs a full reversal. With the standard 3-box reversal, price must move at least three boxes against the current column before a new column starts. So every column after the first has at least three marks.
- A new column starts one box over. When a reversal happens, the new column begins one box below the last X (for a new O column) or one box above the last O (for a new X column), in the next column to the right.
- No time axis. Columns move right only when direction changes, not when time passes.
Reading the story
Read a P&F chart left to right as a contest between buyers and sellers. Compare each column with the ones before it:
- Higher tops and higher bottoms mean demand is winning: an uptrend.
- Lower tops and lower bottoms mean supply is winning: a downtrend.
- Tops and bottoms at the same levels mean a standoff: a trading range. Ranges are where most of the important signals are born.
The single most important question on any P&F chart is: has the current column moved past the previous column in the same direction? When an X column rises above the top of the prior X column, that's a Double Top buy signal. Almost every pattern in P&F builds on that idea.
For education only. Nothing here is investment advice or a recommendation to buy or sell any security.