Point and Figure Charting: The Essential Application for Forecasting and Tracking Market Prices

Very good book I highly recommend it to anyone who wants to gain knowledge

Dorsey,DeRosier & the rest of the Dorsey Wright Crew continue to amaze and improve with each edition. The bottom line is an outstanding system which takes the emotion out of investing and if followed makes money. Its an easy read and system to apply whether you’re a novice or experienced investing professional. A must read and better yet a must system if you’re serious about making money. Joe D., Everett, Wa.

While it is difficult to consistently predict future price movements, it is much easier and more profitable to trade in the direction of the primary trend. Point and figure (P&F) charts help one define and identify those trends relevant to one’s trading horizon. What makes this charting method so useful is that its simplification of price reporting makes current market status readily obvious. Whether the market is trending or in a congestion is seldom in doubt.

The simplicity of the P&F method bolsters its robustness in an effective trading program. Not only do price charts readily summarize market status, but other P&F techniques assist in reducing uncertainty. For example, it is possible to derive the likely extent of price movements from horizontal and vertical counts of congestion widths and depths; a bullish percent indicator is absolutely indispensible to successful trading; also, relative strength charting of individual sectors or issues compared to market averages helps answer both investment questions, “what,” and “when.” P&F analysis is useful in trading any vehicle from securities to futures. This was the first charting method used in the US and its use probably dates back to 1885, as per “Kline’s 123 Tread Register.”

Dorsey’s book is a complete exposition of the P&F method. Based upon the prior writings of Ernest Staby, Abe Cohen, and Earl Blumenthal, the method is based upon a “reversal” formula using data readily accessible, as compared to the traditional “point” method of Wyckoff, deVilliers, and Taylor, which required access to tick-by-tick data. This book is well written; the material is presented clearly with many examples; and the method is very helpful in clearing the noise from market analysis.

Free P&F charts are available from stockcharts.com. In particular, I prefer percentage charts which eliminate the “box size” problem and facilitate intermarket comparisons. These percentage P&F charts require an adjustment in calculating horizontal and vertical counts, as follows. In, say, a 2.5%-2 box reversal chart of WTIC, a horizontal count on a congestion stretching from Sep06 through Jul07 has a width of 18 boxes. Multiply this width (18) by the number of boxes in a reversal (2) and this becomes the exponent in the following formula: ((1+percent)^Exponent)*Low price in congestion = Target high price. (For a target low, divide the high price of the congestion by the percent to exponent.) [For WTIC: ((1+.025)^(18*2))*51.34 = 124.89 to 128.01 (bottom of range, 124.89 [calc] * 1.025 = top of range 128.01.] For vertical counts, count unbroken movement from high or low of congestion, multiply by reversal boxes, and use this as exponent for the box range percent. Multiply or divide the high/low price of the congestion be the exponented percentage.

I feel that acquiring familiarity with the P&F method will substantially increase one’s ability to successfully identify and exploit market opportunities as they mature. Dorsey’s work is a great place to start!

The value of this book is much more than learning the technique of Point and Figure charting, although it will certainly do that. Dorsey spends considerable time in explaining his investment strategy, which depends highly on bullish percentage and P&F relative strength charts. His goal is to put the odds in your favor before making a trade based on a clear assessment of the supply/demand situation in the markets. As Jim Cranmer on CNBC says, “There is always a bull market somewhere” and P&F relative strength charts will tell you where it is. If you need to be defensive in your investing, the P&F charts will alert you to do that. A very sensible approach to investing.

Thomas Dorsey is a renowned expert in the arcane craft of Point and Figure charts. To the untrained eye, PnF charts look like football plays with all the X’s and O’s. Developed by Charles Dow, the basic principles have withstood the test of time for many years, much of which pre-dates computer systems and technical analysis software. While you can learn with many online resources, such as StockCharts, you’ll find this book provides an instructive understanding of the theory behind this type of analysis. The strength of PnF lies in the ability to filter out all other noise and focus on the price. In the old days, floor traders only had a price chart to enable them to determine what they would bid or ask for securities. The Bullish Percent indicator, for the NYSE for example, clearly provides an over-arching measure of “risk” in the markets. This indicator simply shows a percentage of those stocks that move into sell or buy signals as a whole. It gives you a barometer of how big or small you should trade or invest. I highly recommend this book to those who want to use PnF charts in their daily repertoire of trading tools.

This is a review of the 1st edition of “Point & Figure Charting: The Essential Application for Forecasting and Tracking Market Prices” (John Wiley & Sons, 1995) by Thomas J. Dorsey.

For the first time in my life (I’m 73 years old), technical analysis of the stock market makes sense to me. Enlightenment came when I discovered trend following along with Point & Figure (P&F) charting.

I began learning about the stock market in 1953 when I read “How to Buy Stocks” by Louis Engel. After that, I added one or two volumes a year to my collection of books on investing. I faithfully watched Wall $treet Week with Louis Rukeyser throughout the 70s, 80s, and 90s. I was a regular viewer of the CNBC business channel throughout the 90s and into the 21st century. The Wall Street Journal, Barron’s Magazine, and Money magazine were my familiar daily, weekly, and monthly companions.

I became a buy-and-hold investor in the early 70s, retiring in 2006 with what seemed to be a solid IRA retirement portfolio. Fundamental analysis was the name of the game. Value investing was my thing. The outlook for my Golden Years looked good to me.

Then my financial world came tumbling down with the awful bear market of 2007-2009. Early in 2009, after half of my net worth was gone, I pulled the plug on buy-and-hold. Enter technical analysis, P&F charting, and trend following. In a few short weeks, I turned my investment philosophy around 180 degrees. I made the transition (metamorphosis?) from long-term investor to short- and intermediate-term trader. Growth of capital plus protection of assets became my new strategy.

I acquired a used copy of the first edition (1995) of “Point & Figure Charting” by Thomas J. Dorsey. This is a practical how-to book on trading. I quickly learned P&F charting fundamentals with emphasis on rising columns of Xs (demand is in control) alternating with falling columns of Os (supply is in control), bullish & bearish trend lines, support & resistance levels, buy & sell chart patterns, bullish & bearish price objectives, risk & reward calculations, relative strength analysis, sector rotation, setting stops, money management, and market timing. Best of all, Dorsey introduced me to market and sector analysis with the power and simplicity of P&F Bullish Percent Indexes. For the first time in my life I have learned how to analyze markets, sectors, and stocks without dependence on the talking heads.

The advantages of P&F Charts are many. They eliminate minor movements by filtering out the meaningless ripples that often make bar charts appear noisy and confusing. They make bullish and bearish trend line recognition a no-brainer, being so obvious that you can’t argue with it. P&F charts plainly highlight major support and resistance levels. Buy and sell signals are clear and unambiguous. Bullish and bearish price targets are objectively obtained. Outperformers and underperformers are easily distinguished by means of their relative strength P&F charts. Do you want to outperform the S&P 500 Index? Go for it with your P&F relative strength chart as your guide!

One of the nicest features of Dorsey’s book is his presentation of statistical probabilities associated with the various P&F chart patterns. These probabilities came from research done by Professor Robert Earl Davis at Purdue University in the 1960s.

I especially appreciated Dorsey’s football game analogy for shedding light on the Bullish Percent Indexes. When the market has the ball (falling column of Os), you make defensive plays. When you have the ball (rising column of Xs), you make offensive plays. Yes, football fans, P&F trading is really that simple.

What’s really great about P&F charting is the short learning curve. I progressed from mystery to awareness to understanding to mastery within a few days using Dorsey as my guide, proving that old dogs like me can learn new tricks.

Try it. You’ll like it.

There probably is no one single answer to navigating today’s volatile financial markets. But this volume, if you are willing to take the time to learn the systems and do the work necessary to master the concepts in this text, will be worth the effort.
Tom Dorsey speaks from years of experience in the securities industry and brings his vast knowledge of how supply and demand impacts the stock, bond, mutual fund and futures markets to all investors, regardless of their market experience. Yes, Point and Figure charting can be labor intensive. But using the methods described clearly and succinctly in this book can give all investors an understanding of how to approach their portfolio management.
I highly recommend this text for those willing to do their homework.

In the investment world, Tom Dorsey is a legend. I had delved into his P&F work back in the mid 90’s, knew the team back in Richmond a little … but when transitioning to a wirehouse firm in 2000, I was taken down the path of “go raise money”, “delegate this to managers who have more resources”, etc. Mistakenly, I believed the hype, believed I wasn’t “smart enough”, wasn’t sure I wanted the responsibility anyway — and then 2008 came. It was the global event that changed my life and advisory career. I got Tom’s new edition in late 2008, poured myself into the text, went to their broker institute (for the 2nd time in 12 years) relearning old concepts and learning new material. And the improvements in my career are starting to explode.

In 2009, I fired EVERY outside manager running money for my clients and took over the responsibility and the accountability. Why? The vast majority of mutual funds and third-party managers are MANDATED to stay fully invested at all times — and they don’t care one ounce about preserving your money when markets are getting killed. If 2008 brought a market index down 40%, these managers were celebrating for being down “only” 37%! Also, a reason for this “all in, all the time” mandate is fee revenue. If they recommend more defensive moves (like going to cash), their revenue stream dries up — so purely from a self-serving motivation, they will not tell you to EVER go into “wealth preservation mode”. That’s your decision.

Dorsey’s efforts give you an organized game plan — especially if you’re an advisor like me who is a trusted steward of millions of dollars of other peoples’ money. For DIY investors, it gives you the same game plan … but it takes a LOT of work and continual effort. This is NOT a buy and hold, “sit there and take it” approach. Nor is it day-trading hype. It requires work and study practically every day … This book and the very hard work I’ve committed to over the last three years gave me the motivation to start my own investment firm and sail my own ship, and I will NEVER look back.

In the last 4 weeks, the markets have had incredible volatilities and investors have lost a lot of money because they or their advisors had NO IDEA how to manage risk. Thankfully, I did — as I got portfolios more conservative in mid-June 2011. Now that my clients have seen how well their capital has been protected using this methodology, I have never been thanked more in my 25+ year career. I’ve never been happier, more satisfied or more confident.

If you believe Wall Street’s conventional “buy and hold” wisdoms and mutual fund track records are all you need in today’s global economy … you’re kidding yourself. Get educated and informed. Get this book if you’re SERIOUS about having a game plan that makes sense.

Very good fundamental explanation of Point and Figure charting. Although technical, also had some humor injected to keep it light reading. More importantly, it did help me with my investments after I understood how to use the charts.

An easy read and an easy way to confirm general direction of a stock or mutual fund. The instruction also lets you work out a potential goal for the security regarding price movement.

Good starter on P&F. Dorsey keep promoting his own website, which charge 35$ month after initial 21 day trial. But I like the sector analysis and rotation techniques in the book and in the website. Jeremy De Plesis book must be read by anyone who want to be an expert. Dorsey’s book is good for weekend investors. If you want to be a serious P&F analyst, then this book is not enough. I do P&F quite a bit in my analysis and pays off, specially long term investments

One of the key investment strategies ever investor must learn… Tom motivates you to be a better investor and Point and Figure technician.

This book is easy to follow and understand. I would recommend this book to anyone wanting to learn about, and utilize, point-and-figure charting for investing.

I read most of the book and use it as a reference. You will get the most out of it by subscribing to Dorsey Wright.
I use point and figure and cross check with candlestick charting. My son uses point and figure and has had success using it. Depends on your trading style and patience. The book is a good cure for insomnia.