Point&Figure

[subarashi]

An Introduction

This blog will describe my experiences using Point and Figure charts and Equivolume charts. I want to develop a method that ignores time and concentrate solely on Price and Volume to manage trades.

Stocks will be picked using standard P&F buy signals and supporting Equivolume boxes.
Selling will likewise use standard P&F sell signals with supporting Equivolume boxes.

 

[subarashi]

A First Trade

Not having a web site I cannot post any charts which makes explanations a little difficult. Using Point and Figure methodology I opened a trade on 888.L on 15th of February 2008. the price was 146 pence. This was based on a buy signal using a 3by2 closing price reversal chart.

Two price targets were established from this chart:

1. price target 1was 154
2. target price 2 was 176

Using a 3by1 reversal chart I got a further 2 price targets:

1. price target 3 182
2. price target 4 214

I am using ATR to set stop losses. The initial stop loss was set at 132. This will be moved up to 138 today.

Target price 1 was met 18/02/08.

 

[subarashi]

Steady Progress

The 19th saw a steady advance. The price has jumped across the gap down in September of 2006. Since then you could describe the stock as in a consolidation phase.

The Point and figure chart does not show gaps of course, but the rise is now at the base of the major top from that time. The next price target is 176.

Stop moved up to 0.8 ATR based on the High.

 

[subarashi]

An Early Strike

Well, 0.8 ATR proved too close and the trade died with a small net profit. Why did I put the stop so close? I liken it to the angler who strikes too hard and fast when he gets a bite. The result is often a lost fish and a bruised ego.

I put it down to experience and begin looking for another chance. I rather like the angling metaphor. The more I think about trading the more it feels like fishing. We all know there are plenty more fish. We miss a lot, catch lots of small ones and occasionally get the chance to show off the big one that didn't get away.

Next time!

 

[subarashi]

Casting Again

Continuing with the angling metaphor, I cast around yesterday for another possible stock. I came across SHP.L which is moving well and gave a buy signal a couple of days ago. I found 2 good horizontal price targets spanning Oct 2006 to January 2008, and April 2007 up to Oct 2007. Because Point and Figure charts have no time element these targets are valid. The 1st target is 1033 and the 2nd is 1134.

This gives an average R/R of 3.5. I bought some shares at 955. Yesterday's close saw the price at 974.

Stop loss is 1.5 ATR 45 based on the low of 943.

The Equivolume chart shows most of the volatility has been on the up side. Yesterday was more balanced though.

 

[subarashi]

Progress

At the end of the trading week the stock reached a high close to the 1st price target. I will keep the same 1.5 ATR stop loss away from the low at the start of next week.

 

[subarashi]

Monday Start

Trading has just started and I decided on a stop loss of 920. This is 9% below the last high and a little over 2 times the current volatility.

 

[subarashi]

Pole in the Offing

The stock price moved to 1000 pence by the close on Friday. The Point and Figure chart shows a pole developing. These beasties have a nasty habit of turning around and you can watch profits disappear. conventional wisdom says sell when the price drops half way down and buy when it recovers to 50%. In light of this today's stop is at 949 pence.

 

[subarashi]

Exciting Times

The first price target of 1033 pence was exceeded yesterday. This means I am in te position of being able to take profits or continue. Will the price break through, or will the price back off at this important moment. The market opens in 10 minutes!

The stop loss has been moved up to 1003. I decided this on ATR and reading the volatility and volume on the Equivolume chart. Volume is beginning to decline and perhaps the range is narrowing. It reminds me of the way a snail pulls in it's eyes when it butts up against something; testing carefully how best to advance.

 

[subarashi]

Demand and Supply

For the first time a slight weakening of demand seems present. Not enough to turn around the 3by1 Hi/Lo chart, but a new box failed to materialize on a closing chart.

Any turn around threatens to complete the pole which will happen if the price retraces 50% or more of the rise. The price might move horizontally as positions unwind and some re-evaluation goes on.

In view if this I have placed my stop at 1005 which is half way up from the initial purchase price. If I get stopped out then I make a profit and if the price falls but then turns around again I can raise the stop again to make more profit.

 

[subarashi]

Stopped Out

Things worked out as expected. The price turned around and I was stopped out at 1005 pence.

The second half of the pole is now in the making. There might be continued downward movement or an unwinding of the position as some redistribution takes place. The pattern will break down and a new trend get established. If the trend is up I can re-buy when a signal is issued and a price target established.

It is a good idea to continue watching a stock even after you have sold, just to see how the position plays out.

In the meantime it is time to start fishing again.

 

[subarashi]

Housekeeping

Weekends are the time to do a little housekeeping. I keep my default list of stocks in two sublists of bulls and bears. The bulls are those stocks with x's of 2% and 1% and the bears are those stocks with o's of 2% and 1%. The weekend is the time I check the stocks and swap them around if necessary.

Since I now hold no stocks I am also looking at the bulls to see if any buy signals were issued on Friday or look likely to occur on Monday. A buy signal must show a double top or be half way up a pole. The Equivolume chart must also indicate ease of movement with some volume.

Finally it must be possible to generate a valid price target and risk/reward ratio from the candidate stock.

 

[subarashi]

A New Trade

Well, housekeeping finished and several promising candidates either likely to issue buy signals or having just issued buy signals. I spent an agonising (don't you just hate American spell checkers), Monday morning going over half a dozen charts with lot's of coffee to help the thinking and decision making process. In the end I didn't pick any of them. Doing a heat search came up with a stock not in my catalogue.

I was leaning towards a raid this time. That is I wanted a low priced stock with potential for a big percentage rise and then get out. I didn't realise that until I noticed all the stocks I had picked as candidates had prices of 100 pence or less. Not one to go against such an obviously strong feeling, when my heat search turned up AZM.L and the P&F chart OK'd it I placed my order at 42.25 pence. Close on the day was 44 pence.

The P&F chart gave me a price target of 50 pence and a more distant one of 90 pence. The downside count I got off the chart was 32 pence. This was not breached at the low and gives confidence.

Initial stop was set at 34 pence.

I will start today with 2.5 ATR (6.87) from the closing price.

 

[subarashi]

Shopping and sushi

Yesterday I went on a short shopping trip into Kyoto. I bought some Chanel No 5 for my wife and a couple of books for myself. In the evening I went with my family to a local sushi restaurant.

Meanwhile my stop loss was narrowly missed and the price notched up another box on the P&F chart. The Equivolume chart is showing volatility moving onto the downside and the range narrowing. This trade was only expected to be a raid and so I have set a limit order to grab a 20% gain and get out. If it works then thanks market for moving the right way. If, on the other hand it seems to go the opposite direction I'll take the best price I can get.

 

[subarashi]

Missed the Bus

I put my order in and the price never went back to 50 pence. So I still have the stock! The price did not drop down far enough to cause a turnaround on the P&F chart and so I put the order in again.

 

[subarashi]

No Change

At the end of the week there is no change in the charts and so the target still remains valid. To avoid missing the boat if the price reaches the target I have put the limit trade up for 20 days.

I will keep monitoring the stop loss daily though!

 

[subarashi]

Housekeeping sees stocks flying to the Bears

Sunday again and I must say that my Bears list is getting longer, to the detriment of the Bulls. Lower interest rates should eventually see prices move back up but let's not hold our breath.

 

[subarashi]

A New Price Target

The fall in price to 45 pence or so saw a new column of O's started. This let me make a new potential count from the long column of X's. The price target came out at 74 pence. Of course that is not confirmed until and unless the price changes columns again.

At the moment some distribution is taking place as the pattern breaks down. It will be interesting to see which way things will go. I still have a price target of 51 and of course a stop loss at 2 ATR.

 

[subarashi]

Sitting

Well the week ended with little action. No change to the P&F chart and so the plan is in place and I can enjoy some time sitting in the early spring sunshine.

 

[subarashi]

Holding Up Well

The blood and gore continues thanks to the too smart operators in the shadowy world of high finance. The fall out has been minimal so far.

The current trade has seen the price holding up well, now just above my stop loss. Maybe the trade will turn out to be a break even instead of a gain.