How to Trade - Book Review - Jeremy Du Plessis, The Definitive Guide to Point and Figure

For the uninitiated, Point and Figure charting is the onlydiscontinuing along its trend.
charting method that analyzes price without the noise3. Understanding Point and Figure Charts. The topics
of time. The noise amplification of time in other formscovered include: Point and Figure Signals, The strength
of charting - Candlesticks, Heikin Ashi and OHLC isof the pattern, differences between 1-box and 3-box
visually disruptive as you toggle between daily, minute,patterns, Traps, Broadening Patterns, Bullish and
weekly and monthly charts.Bearish Patterns that reverse, Poles, Congestion
This visual confusion is removed with Point and FigureAnalysis, Signals with the trend or against the trend,
charts. They are binary in their construction - eitherTrend lines on Point and Figure charts.
there is a buy/sell signal or buy/sell pattern or there isClear illustrations are given on demand pushing price up
not. It is in this style of clear-cut clarity that Jeremy dua column of Xs, whereas supply pushes price down in
Plessis writes his book.a column of Os. Thorough examples are given of how
Jeremy trained as an automotive engineer, thenpatterns vary according to the reversal size used.
studied as an economist, but gave both up to becomeThere are binary rules to ignore or trade buy/sell
a Technical Analyst. He founded Indexia Research insignals that are part of a larger, more complex pattern
1983 and pioneered the firm's development ofand patterns that can trap the untrained eye into a
PC-based Technical Analysis. In 2002, he led thetrade that should have been avoided in the first place.
merger of Indexia with Updata plc, where he is45° degree Bullish Support and Bearish
currently the Head of Technical Analysis and softwareResistance Trend Lines are used to remove
design. While most of the clients of Updata aresubjectivity if a certain price level qualifies as Support
institutional clients, namely European and USor Resistance. Congestion Analysis looks at the width
commercial and investment banks, the Point &of patterns, where the area taken up by a pattern
Figure methods he teaches in the book are universaldetermines the strength of price advancing or declining
and relevant for retail trading purposes. He is a Fellowthat signals potential trade entries or exits.
of the Society of Technical Analysts (FSTA) in the UK,4. Projecting Price Targets. P&F price targets are
and a member of the American Market Techniciansestablished on vertical and horizontal box counts. This
Association (MTA). The MTA awarded him thesection deals with Counts on 1-box reversal charts,
designation of Chartered Market Technician (CMT).Counts on 3-box reversal charts, Nearest counts must
The engineering precision coupled with the factualbe achieved first, Clustering of counts, Negating a
economic rationale forms the solid cornerstones of thiscount, Opposing counts, Combining counts with trend
almanac on P&F methods. With 456+ pages andlines, Unfulfilled counts, Improbable and impossible
over 300 charts in full color, the book is aptly sub-titledcounts, a Good counter or Bad counter, Counts of log
"A Comprehensive Guide to the Theory and Practicalscale charts and Risk to Reward ratios.
Use of the Point and Figure Charting Method."Estimating a price target with P&F charts is not
Jeremy is the alternative and consummate "financialsubjective but a clearly computed forecast based on
engineer". He avoids heavy economic jargon andbox counts. Each box is sized as an identical square
Fundamental Analysis is dismissed early on in the book,without exception. As box sizes are uniform, the
referred to as the "F" word. What he needs to say iscounts identify unambiguous targets. They target may
effectively captured in the way he visuallynot be 100% accurate every time but they are
communicates through the charts.unambiguous. Establishing the vertical and horizontal
There are adequate reader reviews on Amazon andcount of Price Targets is necessary to determine the
Google Book Search, to help you decide if you will getintensity of strength and weakness in price trends.
the book. For those who have just started or areThere is a uniqueness in using 3-box reversal charts,
about to read the book, I've summarized the corewhich enables both vertical and horizontal counts to
concepts in the larger and essential chapters to helpassess the viability of a price target. Whereas, a 1-box
you get through them quicker.reversal chart is limited to horizontal counts only. The
The number on the right of the title of the chapter ismore counts that cluster around a particular price
the number of pages contained within that chapter. It istarget, the stronger the target is.
not the page number. The percentages represent howWhat is distinct about Jeremy's contribution to this topic
much each chapter makes up of the 456 pages inis the addition of Fibonacci retracement analysis to
total, excluding appendices.conventional P&F methods.
Introduction to Technical Analysis. 14, 3.07%.5. Analysing Point and Figure Charts. This chapter
1. Introduction to Point and Figure Charts. 26, 5.70%.integrates the foundational techniques covered in
2. Characteristics and Construction. 62, 13.60%.chapters 2, 3 and 4 with practical trading examples.
3. Understanding Point and Figure Charts. 92, 20.18%.The emphasis is on application and covers these
4. Projecting Price Targets. 66, 14.47%.topics: Reversal Size, Choosing the correct box size,
5. Analysing Point and Figure Charts. 64, 14.04%.Choosing the data series, Log scale charts, Analysis of
6. Point and Figure Charts of Indicators. 18, 3.95%.1-box, 2-box and 3-box reversal charts, Stops in Point
7. Optimisation of Point and Figure Charts. 24, 5.26%.and Figure analysis and Early entry points.
8. Point and Figure's Contribution to Market Breadth. 22,Changing the box size affects the time horizon, not to
4.82%.be confused with time frame, as P&F charts
9. Advanced Point and Figure Techniques. 38, 8.33%.exclude units of time (day/week/month/year). The
10. Chart Examples. 20, 4.39%.smaller the box size, the shorter the time horizon, e.g.
11. Conclusion. 6, 1.32%.1-box reversal charts suit intra-day trades versus
12. References and Further Reading. 4, 0.88%.3-box reversal charts are geared for trades lasting
Focus on chapters 2, 3, 4, 5 and 9, which makes up30-60 days. All trends lines are standardized to one
about 71% of the book. These chapters are relevantstandard of a 45° degree line. This is not a rigid
for practical trading purposes. Here are the key pointsbut consistent methodology and is possible as
for these focus chapters, which I'm summarizing fromvariability in time as discreet variable has been
a retail trader's perspective.removed from the charts altogether. Trend lines are
2. Characteristics and Construction. This chaptersthe most important element of any P&F chart and
deals with the logic for chart constructions using Xsmust be given first priority above buy/sell signals. The
and Os, Up and Down moves, Xs and Os calledmore complex a Bullish/Bearish pattern becomes the
boxes, Box size, Reversal Size, Variable Sensitivity,more significant it becomes. To validate trades to
Gaps, Price on Y-axis but no time on X-axis,avoid, enter or and exit continually assess the price
Two-dimensional charts, No Volume, Demand andtarget, trend lines and vertical count of a column's
Supply and Naming Point and Figure charts.height and horizontal count of row's width.
Chapter 2 covers the foundational attributes for9. Advanced Point and Figure Techniques. This chapter
building Point and Figure charts. What is covered here,is what sets this body of work apart from other
that is glossed over in most P&F books, is theP&F literature. It covers how to use moving
added emphasis on varying the sensitivity of charts byaverages on Point and Figure charts, the need to
changing the box size and reversal size. Gaps aredifferentiate between moving averages on a 1-box
eliminated and do not feature in the charts at all.reversal chart versus a 3-box reversal chart, using the
Volume is already embedded in the Reversal countsParabolic stop and reverse (SAR) Indicator on a
of the P&F chart, without having to graph volumeP&F chart and the Overbought/Oversold analysis
separately. There is no need to fuss with reconcilingon P&F charts with Bollinger Bands.
price against volume-based studies. P&F chartThe moving averages are a straightforward
construction excludes time altogether. Unlikeconfirmation to accept or reject a Point and Figure buy
time-based charts (e.g. Candlesticks/Heikin Ashi/OHLC,or sell signal. The Parabolic SAR pinpoints trends to
etc.), where a minute/day/week/month chart results inqualify a P&F buy/sell signal as one to avoid or
different views causing visual confusion.take for trade entry. With Bollinger Bands, there is a
The sub-section on 1-box, 2-box, 3-box and 5-boxfurther refinement of the methodology on Squeeze
reversal charts is what makes this chapter different.points - statistical volatility contraction/expansion is
Most literature on the subject concentrates on 3-boxconsidered significant where the column length
sizing with token treatment of other box sizes. Thisbetween bands is equal to or less than the previous
where Jeremy's depth of experience becomessqueeze.
evident. 34 pages are dedicated to the effects ofJeremy is the first to pioneer the combination of Point
raising price sensitivity (1-box reversal and 2-box& Figure methods with Moving Averages, the
reversal) for intra-day/day trading purposes versusParabolic SAR and Bollinger Bands.
lowering price sensitivity (5-box reversal) for tradingIn conclusion, Jeremy du Plessis revives a revered
multi-month positions or highly volatile products. Aancient craft of pure price analysis to transform
3-box reversal chart is the default and is moredemand/supply analytics into relevant trading practices
relevant for trading positions held for weeks going afor current market conditions. It is the depth of his
month. It is applicable to the majority of Indexes/ETFs.insights that gives you the foresight to thoroughly
Practical reasons are given for changing the reversalunderstand why charting price using only P&F
count, which adjusts the weighting given to themethods is conclusive, without the need for other
prevailing column and the underlying's statistical volatility.forms of charting.
This affects the intensity of price continuing or