Point & Figure Gone High Tech

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William Rafter

24 Oct, 2005

in Technical Analysis

PF Line vs. PF Time-Extended

There are two ways to work with the reconfigured data: time-compressed, or time-extended. With the time-compressed version you are just using the data as illustrated above. That is, your data is a point & figure line, where each new point on the line represents a movement of the P&F data, rather than a new date or time period. Figure 4 shows a standard P&F chart of the Dow Jones Industrials.


caption: Figure 4.The Classic Point & Figure Chart. DJIA


Figure 5 shows the same market index plotted as a line, with a 10-period exponential average applied to the data, and with a 25 period moving slope plotted as an oscillator. Notice the dated horizontal scale: some months have a lot of activity and some not. That’s the time compression.


caption: Figure 5. Reconfiguring the P&F data makes it usable

 
Suppose that you’re an eclectic sort of trader who mixes and matches his signals to “confirm” his opinion. Some people do that by looking at daily and weekly charts, but you want to mix P&F signals with bar chart data. The two have different time scales, so you have to extend your point & figure lines horizontally across a bar chart until you get another P&F price change. Figure 6 shows a bar chart for the DJIA over the same period with the P&F time extended line superimposed.


caption: Figure 6. P&F Time-Extended


The chart is interesting because it shows you the smoothing effect of P&F, but more importantly, you now have the capability for testing various P&F parameters. For example, the “classic” P&F format such as the chart illustrated uses price highs and lows, and 3-box reversals. But some traders construct their P&F charts from closing data, and others use 2-box reversals, to name a few preferences. In total there are four parameters: box height, box reversal amount, data input (e.g. close vs. high/low), and scale (i.e. linear, log or adaptive). With the data in this digital format you can run trading simulations to see which works best.

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I am very keen on p/f charting and have been using it exclusively and successfully for quite a while. I use updata which is by far the best for these charts. Its pattern searching and scanning lets you set your own formulas to describe any pattern you want. That is besides log scaling, automatic trend lines, automatic targets. Try it and see for yourself. As J deP says, you have to beware that so many programs draw the charts incorrectly, specially 1point reversals. Updata seem to be the world experts.

Jan 09, 2006

Member (159 posts)

Hi,
personally I'd avoid Yahoo data... I had to program around it's dodgy figures a while back - you'd find the 'High' wasn't the highest figure in the OHLC array, or the Low was actually above the close, or something equally stupid, in a surprising number of datafiles. Also in disucssions of index prices a few months ago one chap was quoting figures nobody else saw and it turned out these were Yahoo numbers - can't remember the exact details, but it was something like the daily high and low were made up by adding all the component stock highs and lows, rather than keeping a running total through the day. Obviously not all stocks hit their high or low at the same time - if you are trading the index then it's the tick by tick total that counts, not some shortcut to make the sums easier.

The shareware 'free' data downloaders all, as far as I am aware, grab Yahoo data and suffer the same data problems as a result (although some will connect to a broker feed if you have one) - with a UK EoD datafeed running at £15 or less, perhaps £25 for the US markets, and realtime data kicking in for a few tenners a month it's a false economy to base trading signals on prices that aren't accurate. You get what you pay for

Jan 09, 2006

Member (1162 posts)

Free EOD data

DaveJB
Yup,
Updata have a trial as well - I'd strongly suggest those looking for good P&F try both out to see which suits them best. The chap running Archer is a nice chap, and provided you have a decent datafeed already then it's economical to just add the P&F software to it. If you don't have data, and perhaps would like other TA facilities along with good P&F, then Updata is pretty good.... on top of which I'd suggest that 'how it feels in use' will probably determine the ultimate choice between them.

It's a bit surprising to me that so few 'big' programs out there do a decent job of P&F - they incorporate it as a chart, but either ignore it when providing scanners or implement it so poorly (I'm thinking of Metastock as I type) that it's horrible to use. It's relatively straightforward to code up a scanner for the main patterns - around two dozen or so - yet none of them seem to bother.

Dave


If you want free eod data for your p&f charts go to www.thegrafster.com This site has a free data downloader which uses Yahoo historical eod data for up to 100 symbols over a date range of 5 days to 10 years

Jan 09, 2006

Junior Member (26 posts)

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