Point and Figure Patterns
Point and Figure Charts are the perfect tool for traders who want to know how strong supply and demand are for a stock. Because it records prices in ticks, the focus is on where prices are headed. The method is simple, but powerful. Part of that power is identifying Point and Figure patterns that have been proven to be very effective at predicting prices.
Most investment gurus claim to have the best investment methods or strategies. But how many of them have real science or proof behind them? Point and Figure patterns have been scientifically proven to be better predictors of the market.
A technical research study at Purdue University found that following Point and Figure trends and patterns predicted market direction with over 80% accuracy (see the charts below for more details). Knowing how to identify and trade and Point and Figure patterns has been proven to be very effective.
Below is a list of the different Point & Figure Chart patterns and their likelihood of success if used in speculation. Although each has a different likelihood of success, all patterns are preferable to not using one.
How successful traders use Point and Figure patterns
- Identify when a stock is turning bearish or bullish. These signals help a trader know when to get in or out of a stock.
- Identify when a market or sector is turning bearish or bullish. A bearish market or sector often hurts even the strongest stocks in that sector. Likewise, a strengthening sector or market help lift many stocks in that sector or market.
- Use a service like Point and Figure Alerts to find stocks with any bearish or bullish pattern, instantly. This is a big time saver. Instead of manually scanning through charts, a trader simply specifies that he wishes to see only stocks that fit a certain parameter.
Simple Point and Figure Patterns
Double Top Breakout
One of the most basic patterns. A Double Top Breakout is formed when a high is followed by a decline, then a high which if followed by a rise that exceeds the previous high. Most Point and Figure patterns are a variation of this pattern, or its opposite, the double bottom.
Double Bottom Breakdown
Similar to the double top breakout. A Double Bottom Breakdown is formed when a low is followed by a rise, then another decline going lower than the previous low. Again, most Point and Figure patterns are a variation of this or the Double Top.
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