Article Point and Figure Charting: Part 2 – The Bits That Aren’t As Basic

[T2W Bot]

[Editor’s note: This article was originally written on the 30th Dec, 2005]
Okay, so make your own title up!
In Part 1 I set out the basic ideas of P&F charting. For anyone who would like to read more on the subject there’s an absolute plethora of material out there – one book I’d thoroughly recommend is ‘Point & Figure Charting – The Complete Guide’ by Dr Carroll D Aby Jr. This book doesn’t waffle, which many do, and it’s the only one I’ve found that highlights variations in the methodology – depending on who you read and where you’ll find some target calculations can be performed several different ways for example…. I consider it a mark of thoroughness that this book considers some alternatives to the ‘tools’ of P&F. I’d add this to the book recommendations in my first article, and would opt for this in preference – I should add that I haven’t read the Updata book, by Jeremy Du Plessis, which I’d expect to be of a similar standard. (Forgive me, I add to my library regularly...

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[Sharky]

The eagerly awaited follow up to Dave Baker's introductory guide to P&F Charting.

 

[timsk]

P&F In Bear Markets?

Hi Dave,
Thanks for your no nonsense introduction to P&F - telling it the way you see it without a lot of hype. However, I' was very surprised to read that your backtesting results suggested that the charting method produced poor results in bear markets:

Okay – so in a nutshell, trading P&F signals EoD you can currently expect 60-65% approx winners from the ‘raw’ Long signals. The Bear signals aren’t doing anything like as well – Double Bottoms are returning sub 40% in the same tests. When the markets are bullish, or flat to bullish, short signals seem to do very poorly – the returns during the late 1990’s show some very poor figures, for example. P&F reliability also dipped during the early 2000’s after the TMT bust – my impression is that this is a method that works well for long signals provided you aren’t in a bear market. I have yet to see bearish P&F signals achieve similar results in any type of market.

I'm rather confused by this! Why would a sell signal in a bear market be any different to a buy signal in a bull market? Also, I'd be interested to know from any enthusiasts how they utilise P&F charts in their trading.

Cheers,
Tim.