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Jeremy du Plessis CMT, FSTA Head of Technical Analysis, Updata plc updata

Reasons to use P

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Jeremy du Plessis CMT, FSTA Head of Technical Analysis, Updata plc updata

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    1. Jeremy du Plessis CMT, FSTA Head of Technical Analysis, Updata plc www.updata.co.uk

    2. Reasons to use P&F Charts ‘Voice of the Market’ Only move when market moves Unambiguous signals Objective trend definition Multiple time horizons from same data Objective price targets & risk-reward ratios Better for Relative Strength analysis Ideal for scanning of stock universes

    3. Point and Figure Chart

    4. What is a Point & Figure chart? Typically (not always) constructed with Xs and Os Xs represent up movements Os represent down movements Price is scaled on the vertical Y-axis No time scale along the horizontal X-axis Time not part of construction or analysis X and O represents a price interval - Box Size Price changes below the box size are ignored Column changes determined by Reversal Size

    5. Where did they come from? Started off as a price recording mechanism and became a charting method How?

    6. Where did they come from? 19th Century Floor traders wrote prices down as stock traded (including fractions) 8 9½ 11¼ 12 12½ 13¾ 15 15½ 16 16½ 15 13¾ 12 11¼ 14¾ 15¼ 16 17½ 19¾ 20 21¼ 19½ 18¾ 19

    7. Where did they come from? But realised that fractions didn’t add anything. So removed fractions 8 9 11 12 12 13 15 15 16 16 15 13 12 10 10 11 11 14 15 16 17 19 20 21 19 18 19 20 20 21 23 First tenet of Point and Figure established

    8. Where did they come from? After a Busy Trading Day 8 9 11 12 12 13 15 15 16 16 15 13 12 10 10 11 11 14 15 16, 17 19 20 21 19 18 19 20 20 21 23 21 22 23 22 20 19 18 17 18 19 19 18 19 19 20 21 22 23 21 22 20 21 19 18 17 16 18 17 16 18 19 19 18 17 18 19 19 20 21 21 22 22 21 21 22 23 18 19 19 18 19 19 20 21 22 23 21 22 20 21 19 18 17 16 18 18 19 19 18 19 19 20 21 22 23 21 22 20 21 19 18 17 16 18 Difficult to make any sense

    9. Where did they come from? Realised columns would be easier and more informative 16 15 14 14 13 13 13 12 12 12 11 11 11 10 10 9 8

    10. Where did they come from? Started to notice patterns in the data

    11. Where did they come from? Price record becomes a Figure Chart

    12. Where did they come from? Figure chart becomes a Point Chart

    13. Where did they come from? Traders referred to their point charts and their figure charts as their…. Point and Figure charts! And so Point and Figure was born

    14. Where did they come from? Modern Point and Figure chart

    15. Column Reversals 1-box – original method 3-box – most popular Data required Tick – plot each price – original method Too much data for longer term analysis Daily - using Close or High/Low Ideal for longer-term analysis Intraday – using 60min, 1min close or high/low Ideal for shorter-term Various Construction Methods

    16. Unambiguous Signals All 3-box P&F signals based on Double-top and double-bottom break (1-box patterns are more complex) The wider the pattern the stronger it is

    17. Unambiguous Signals Triple-top and triple-bottom break

    18. Unambiguous Signals Signals are unambiguous…. BUT not every signal should be taken Signals put you in the right frame of mind Point and Figure analysts Look left for Support or Resistance Look left to see if it is part of a bigger pattern Look for common Point and Figure patterns Use the Trend lines to confirm or reject signals

    19. Point and Figure Trend lines Trend lines vital for Point and Figure analysis Two ways to draw Trendlines: Subjective Lines can placed subjectively to show trend Objective – advantage of Point and Figure charts Lines drawn at 45° from tops and bottoms 45° = one box up/down, one column across Defines bull and bear trends

    20. 45° Trend Lines – Nasdaq

    21. 45° Trend Lines – Nikkei 225

    22. 45° Trend Lines – S&P500

    23. 45° Trend Lines – FTSE 100

    24. 45° Trend Lines – FTSE 100

    25. Add Subjective Trend Lines ?

    26. Or better to add 45° Internals

    27. Trends & Internals - DJ Stoxx

    28. Trends & Internals on Oil

    29. Trends & Internals EURO

    30. Advantages of 45° Trend Lines Can be drawn immediately after top/bottom Objective - can’t argue with them They alternate and carve up the chart Easy to see bullish and bearish sections Add dimension to the chart Help accept or reject Point & Figure signals Can see the trend easily

    31. Uptrend or Downtrend?

    32. Are you sure?

    33. Point and Figure Scaling In Point and Figure terms: Arithmetic: Fixed points box size Log: Percentage Box Size

    34. Arithmetic Chart - Vodafone

    35. Log Scale Chart - Vodafone

    36. Log or Arithmetic? Log better:- For medium and long-term analysis Where large rise and fall Where rise has been exponential Arithmetic better:- For linear price rises For charts in a price range (e.g. Bonds) Essential for intraday charts especially tick charts Essential for Forex

    37. Multiple Time Horizons Changing the Box Size changes the Sensitivity Changing Sensitivity changes the Time Horizon Obtain Short, Medium and Long-term view from same data Log scale % boxes ideal for this

    38. 2% Box = Long-term View

    39. 1% Box = Medium-term View

    40. 0.5% Box = Short-term View

    41. EURO Daily - 100pip

    42. EURUSD Daily - 50pip

    43. EURUSD Daily - 25pip

    44. EURUSD Daily - 10pip

    45. EURUSD Hourly – 10pip

    46. Objective Price Targets Unambiguous way to obtain targets Two Methods: Vertical Count - based on thrust off low or high Horizontal Count - based on pattern width Unambiguous does not imply accuracy Targets and trends go together Achieved and unachieved targets tell you Trend strength/weakness Warn of trend deterioration

    47. Vertical Targets - NASDAQ

    48. Vertical Targets - NASDAQ

    49. Vertical Targets - NASDAQ

    50. Vertical Targets - NASDAQ

    51. Vertical Targets - NASDAQ

    52. Vertical Targets - NASDAQ

    53. Vertical & Horizontal - S&P 500

    54. Vertical & Horizontal - S&P 500

    55. Vertical & Horizontal - S&P 500

    56. Vertical Targets– Cable 100pip

    57. Vertical & Horizontal – Oil

    58. Objective Risk-Reward Ratios Point and Figure gives you: Reward = Target – entry price and Risk = entry price – exit price Risk-Reward ratio = Reward / Risk Helps you decide Whether to take the trade What Stop level to use Either: Point and Figure signal as Stop Or: % Trailing Stop

    59. Risk-reward ratio at signal

    60. Risk-reward ratio after signal

    61. Risk-reward at triple-top signal

    62. Risk-reward ratio - new target

    63. Risk-reward ratios NOW

    64. Risk-reward ratio at Signal

    65. Risk-reward ratio NOW

    66. Better Relative Strength charts

    67. What is Relative Strength? Ratio chart Usually share price divided by index Best to Normalise the Ratio How? Why? What’s the Advantage? Rising chart = share outperforming Falling chart = share underperforming Essential for good fund management Buy/hold outperformers Sell underperformers

    68. Why P&F of Relative Strength? Same advantages as price charts Clear signals Objective trend lines Objective targets

    69. R/S HSBC / UKX

    70. R/S Maersk / SXXP in Euros

    71. R/S UBS / SXXP in Euros

    72. R/S BMW / SXXP

    73. Clear-cut signals make Point & Figure ideal for scanning Scan your universe of stocks: P&F buy signals and/or P&F sell signals and Risk Reward ratio greater than 2.5 and Trend is up/down Best to use two time horizons 1% & 0.5% Add Relative Strength with same box sizes Ideal for finding Opportunities

    74. So what should you do now?

    75. Start using Point and Figure in your analysis Include a P&F chart in your report Log or Arithmetic depending on the term Consider drawing them with Xs only Add 45° trend lines for support/resistance Consider using moving averages Add a few targets Explain what the chart means So what should you do now?

    76. FTSE Chart for your report

    77. Try Moving Averages instead

    78. Include some Fibonacci Extensions or Retracments And if you really want to ....

    79. FTSE with Fib. extensions

    80. Look at a different perspective

    81. Your analysis will stand out from the crowd ! ? Email: Jeremy@Updata.co.uk The result is…..

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