Beruflich Dokumente
Kultur Dokumente
Welcome:
Lesson 1:
Introduction
Here we go!
In this section we will list any
This chapter is designed to familiarize you with Point and Figure Charts, we call upcoming live online classes
these "attributes" in this University. For those that are familiar with PnF and
specifically covering this chapter.
have used it in their investment research, you will know most of these terms
and concepts. However, it is good for a review as terms used in this chapter
will be repeated throughout the University. This chapter does include vital
information for basic charting and it shouldn't be skipped over as it is a
foundation for the following chapters. Chapter 1 is the base and each chapter
following is a vital component in understanding the big picture, how to put it all
together. One cannot understand the whole without knowing the parts.
Lesson 1 Contents:
Part 1:
Attributes of a Chart
Part 2:
Attributes
Box Scales
Dates and date lines
Trading bands
Numbers adn letters for the months
Part 3:
Chart Basics
Three box reversal
Box scale tables
Flow chart of investing
Examples of how to chart
Support Lines
Support Lines
Bullish Support Line
Bullish Resistance Line
Bearish Resistance Line
Bearish Support Line
PnF University
Welcome:
Lesson 1:
Here is a Point and Figure Trend Chart with the characteristics pointed out and described. We will go into
detail as we continue through the first lesson.
A Point and Figure Trend Chart:
The trend chart depicts the price action of the stock. We call it the trend chart because of the support and
resistance lines that determine whether a chart is above or below trend. If someone say's "...the trend chart"
you know they mean this type of chart, this is different from an RS chart for example.
Key Points:
The vertical axis is the price scale. From this you can determine the value of each
row.
These are hyphenated as "Bot" for the bottom of the trading band, "Med" for the
medium of the trading band and "Top" for the top of the trading band. Applications of
the the Trading Bands will be discussed in later chapters.
The Bullish Support Lines and Bearish Resistance Lines help us determine the
trend of the stock.
Next
PnF University
PnF University
Welcome:
Lesson 1:
The scale for a point and figure chart is on the left hand side or the
vertical axis. By looking at the price increments of the scale we can
determine the box size at that level.
Price of Stock
Box sizes:
Changes
are
determined
by the
price range
of the
stock or
index.
Here is a
guide to
those
changes.
Examples:
What the
price
columns
would look
like in the
various
box sizes:
0.25 box
5.00
4.75
4.50
4.25
4.00
3.75
3.50
Box Size
0.00 - 5.00
0.25
5.00 - 20.00
0.50
21.00 - 100.00
1.00
+ 102.00
2.00
0.50 box
9.00
8.50
8.00
7.50
7.00
6.50
6.00
1.0 box
40.00
39.00
38.00
37.00
36.00
35.00
34.00
2.0 box
120.00
118.00
116.00
114.00
112.00
110.00
108.00
PnF University
Crossing
Box
Sizes:
There are
times
when a
stock will
cross
several
box sizes.
Here is an
example of
what that
price
column
would look
like:
4.75
4.50
4.25
4.00
19.50
19.00
18.50
18.00
change here
Next
PnF University
Welcome:
Lesson 1:
Next
PnF University
29
28
27
26
25
32
31
30
29
28
For the smaller box sizes you still round to the "whole" numbers in the box.
For example, in the .50 box
size if a stock trades to 10.63
you would mark up to the
10.50 box not the 11.00 box.
11.00
10.50 X <-10.63 is not high enough
10.00 X
to mark up to the
9.50 X
11.00 box
9.00 X
5.00
4.75
4.50 X <-4.73 is not high enough
4.25 X
to mark up to the
4.00 X
4.75 box.
PnF University
Chart?"
If the answer to the first flow chart question was "no", then we must determine whether
the chart reverses direction thus changing columns. We use a three box reversal
method to determine a reversal.
Three Box Reversal Method:
The price action of a stock is marked by two different columns, by X's for the price
moving up and O's for the price moving down. In other words, X's are for demand and
O's are for supply. To move from one column to the next, from X's to O's or vice versa,
Point and Figure charts require a three box reversal. The stock must be able to move
three boxes before it can change columns. If a stock is in X's at $25 then it must fall 3
boxes to reverse into a column of O's. This would be $3 since the scale of the chart at
$25 is $1 per box and it must reverse by three.
Reversal Requirements:
5.00 0.75 pts.
0.00 to
20.00 1.50 pts.
Use this as a guide.
5.00 to
100.00 3.00 pts.
20.00 to
200.00 6.00 pts.
100.00 to
Examples:
Here are examples of the three box reversals for the different box sizes.
0.00 to 5.00 chart (0.25 box)
As shown in this example, the price
had to move down or up a total of 0.75
points to complete the three box
reversal.
PnF University
If the stock does not meet the criteria to reverse (described above) then there is not
action on the chart for that day. Unlike a bar chart, a Point and Figure chart won't
necessarily make a movement everyday. If the price action of the trading day does not
continue the chart in its current direction (flow chart question 1) or change columns
(flow chart question 2), no mark is made on the chart.
For example, on the 1 box
chart:
Let's say a stock trades a high
of 32.50 and a low of 29 7/8 and
the column of X's are at the 32
level.
We'll go into more detail about this in a
little bit.
33
32
31
30
29
Next
PnF University
PnF University
Next
PnF University
Welcome:
Lesson 1:
One of the most important guides you have in Point and Figure charting is the Bullish Support or Bearish Resistance Lines. It is uncanny
how a stock will follow along either the Bullish Support or Bearish Resistance Line. They are like brick walls.
A stock is bullish if trading above the bullish support line and bearish if trading below the bearish resistance line.
Bullish Support Line.
Serves as a guide for the up trend of a stock.
Has a habit of acting like a brick wall. Stocks will often
come right down to the bullish support line and then
bounce off.
To draw the support line, you must first have a buy signal
off the bottom. Go to the lowest column of O's and begin
drawing a line up at a 45 degree angle. The angle will
always be a 45 degree angle.
PnF University
Once a stock is well above the long term bullish support line, short term trend lines can be drawn. When a stock rises significantly above
this trend line and gives more buy signals, you can go to the bottom O of that new distribution and draw another trend line. The first
Bullish Support line will always serve to be the long-term trend line and may very well come into play years later. These shorter term
trend lines serve as visual guides for you. The short-term trend lines can also be valuable to the trader in identifying the direction of
stocks. Traders often initiate a long trade when the stock has declined near the Bullish Support Line because the stock is then close to
the stop-loss point. The most important characteristic of the Point and Figure method is its clear guidelines for entering and exiting a
trade. Once of the main keys to successful investing is avoiding the big hit. These guidelines will help you do that.
http://208.149.108.6/cgi-bin/foxweb.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.com&lesson=1&page=7 (2 of 3) [4/19/2001 8:32:38 PM]
PnF University
When the stock penetrates the trend line (the BSL) and
simultaneously gives a sell signal, it is critical event and a
strong sign to sell the stock. To qualify as a penetration, the
trend line must be violated and not just touched. There is no
such thing as the line being a little penetrated. It is or it isn't.
Below, the stock maintained the trend line all the way up
from $15 to $25. Soon after, supply took control of the stock.
When the stock hit $21, it not only gave a double bottom sell
signal but also violated the Bullish Support Line. The
violated support line was the key sign there was a high
probability that the trend had changed. *A trend change is
when the trend chart turns from negative to positive or vice
versa. This correlates to the Bullish Support or Bearish
Resistance Line. As long as the stock trades above the BSL
it is a positive trend but once it pierces that line the trend
becomes negative. We will go over buy and sell signals in
Lesson two.
Next
PnF University
Welcome:
Lesson 1:
PnF University
We typically prefer not to go long when below the Bearish Resistance Line. This line, like the Bullish Support Line, can be as strong as a brick
wall. We say a stock is bearish when it is on a sell signal and below the Bearish Resistance Line. Be wary of buy signals that come from just
below this resistance line as they tend to be false or best suited to traders. Stocks that are moving up to this line typically find formidable
resistance there. Also, a stock must be on a buy signal to penetrate the Bearish Resistance Line. Short sales can be initiated in weak stocks
when the underlying stock rallies up to the resistance line but is still below it. This is the optimum point to sell short on any of the bearish chart
patterns.
The Bearish Support Line.
The Bearish Support Line is the reciprocal of the Bullish Resistance
Line and is drawn by moving to the left of the Bearish Resistance line
to the first all of X's. Again, not to the next column of X's but to the first
wall of X's. Then move the the first column of O's next to it and begin
drawing your support line down from the empty box below the last O.
The line, which will automatically be a 135 degree angle by connecting
the diagonal boxes, can be used as a guide to identify where any
decline might be contained.
PnF University
With the DWA database only the primary support lines are shown; The Bullish Support and the Bearish Resistance Line.
Example of a long term Bullish Support Line.
61
60
59
58
57
|
|
--------+---------------------------------------------------+---X
|
|
X
|
X
|
X
|
X O X
|
X
61
----------------------60
O X
59
O X O
58
O X O
57
PnF University
56
|
X
X O X O X
X O X O
56
55
--------+---------------------------------------X O X O X O X O X O --2 ------------ Med55 54
|
X O X O X O X O X
O
54
53
|
X B X C
O | 1 X
O
53
52
|
X O
| O X
*
52
51
|
X
X
X
| O X <--Bounced here
51
50
--------+-----------X O X O X ------7 --X ------X ----------+-O * ----------------------50 49
|
X O X O X O
X O X O
X
| *
49
48
|
X O X 5 X O
X O X O
X
*
48
47
|
X O X O
O X
X O X O X
X
* |
47
46
|
X O
O X O X O X O X O X
*
|
46
45
-------+-----------X --------O X O X O X O A O X ----* ----+---------------------------45 44
|
X
4
O X O
8 X O X O X <--Bounced here.
44
43
|
X O X
O X
O X 9 X O
*
43
42
|
X O X
O X
O
O
*
42
41
|
3 O X
6
*
41
40
--------+-------X O ------------------------* --------------+---------------------------40 39
*
X
X
*
|
39
38
*
X O
X
*
Notice how the stock has
38
37
*
X O X
X
*
traded above the BSL and
37
36 Break ---->X O X O X
*
has bounced a couple of times
36
35 of BRL X --1 O X O X ----------------* ------------------------+---------------------------35 34
X O X O X 2
*
|
34
33
X O X O
*
|
33
32
X C X
*
|
32
31
X
X O |
*
|
31
30 - X O X --+---------------* ----------------------------------+---------------------------30 29
X O X
|
*
|
29
28
X B
|
*
|
28
27
O X
|
*
|
27
26
O X
|
*
|
26
25
O X ------+-----* --------------------------------------------+---------------------------25 24
A X
|
*
|
24
23
O X
| *
|
23
22
O X
*
|
22
21
O X
* |
|
21
20
O X --* --+---------------------------------------------------+---------------------------20 19.5 O X *
|
|
19.5
19.0 O * <--Bullish Support Line is created.
----------------+---------------------------19.0
|
*
---------------X
X
X
X O X
B O X
X C |
-----------X --|
X
X
|
X O X
|
X O X
|
X A
*
---X --9 ----* |
X O X
*
|
|
|
*
O
O
1
O
O
O
O
O
2
O
|
|
|
57
|
56
<--Bearish Resistance Line created.
-----------------| ------------------------55 *
|
|
|
54
*
|
|
|
53
*
|
|
|
52
*
|
|
|
51
--------* ----------| --------------------| ----------------------------| ------------------------50 *
|
|
|
49
X
*
|
|
|
48
X O
*
|
|
|
47
X O
*
|
|
|
46
<--Break of BSL | --------------------| ----------------------------| ------------------------45 O
*
|
|
44
PnF University
43
* 8 O X *
|
3
|
|
42
O X O * <--Bullish
41
O X *
Support
|
40 -O * -------Line
O --------X ------|
39
*
|
O X
X O
|
38
|
O X O
6 O
|
37
|
O X O
X O
|
36
|
O
O
X 7
|
35 ---------------| --------O X --X O ----|
34
|
O X O 5 8
|
33
|
4 X O X 9
|
32
|
O
O X O
|
31
|
O X O
|
30 ---------------| ------------O --O ----|
29
|
O
|
28
|
O
X
27
|
O
X
26
|
A X
C
25 ---------------| ----------------O X O X
24
|
O X O X
23
|
O
B |
22
|
|
21
|
|
20 ---------------| ----------------------|
19.5
|
|
19.0 --------------| ----------------------|
18.5
|
|
18.0 --------------| ----------------------|
17.5
|
|
17.0 --------------| ----------------------|
16.5
|
|
16.0 --------------| ----------------------|
15.5
|
|
15.0 --------------| ----------------------|
14.5
|
|
14.0 --------------| ----------------------|
13.5
|
|
13.0 --------------| ----------------------|
12.5
|
|
12.0 --------------| ----------------------|
11.5
|
|
11.0 ------------9 | 9 ------------------9 |
|
|
*
|
------* ------------|
*
|
*
|
*
|
*
|
----------------* --|
* |
*
|
|
--------------------|
5
|
3 O X
|
O X O X O
|
O X O X O
|
1 --6 --8 ----------|
O
|
O
|
O
|
O
|
--------O ----X ----|
O
X O
|
--------O ----X O --|
9
X O
|
--------O ----X O X |
O
X O X O
--------O X --B C X O
O X O X O
O
--------O X O X ----O
O X O X
1
--------O X O ------|
O X
|
--------O X --------|
O X
|
--------O A --------|
O X
|
--------O X --------|
O
|
9 ------------------|
*
|
43
|
42
|
41
----------------------------| ------------------------40
|
39
|
38
|
37
|
36
----------------------------| ------------------------35
*
|
31
----* ----------------------| ------------------------30 *
|
29
*
|
28
*
|
27
*
|
26
------------6 * ------------| ------------------------25 5 O <--Bounce off here.
24
X O
*
|
23
X 9
*
|
22
2
X O X
* *
|
Top21
----X O X --X O X O X --X * <--Bounce off here. -20 X O X O X O X O X O X O *
19.5
----X O X O X A X O X O X O | * ----------------------19.0
X O X O X O X O
B X O |
*
18.5
----X O 3 O X O ------O X O | ----* ------------------18.0
X
X O X 4 X
O X O X
*
Med17.5
X O X O X O ----------C --O X O X --2-----------------17.0
X O X O
O X O X O X
16.5
X O X --------------------O | 1 X O X ----------------16.0
O
| O
O X
15.5
----------------------------| ----O ------------------15.0
|
14.5
----------------------------| -------------------- Bot14.0
|
13.5
----------------------------| ------------------------13.0
|
12.5
----------------------------| ------------------------12.0
|
11.5
----------------------------| ------------------------11.0
Next
PnF University
Welcome:
Lesson 1:
Wrap Up
Lesson 1 is dedicated to familiarize you with Point and Figure charts, basic charting
concepts and the three box reversal method.
It is important that you understand fully the workings and rules of three box
reversals, the box sizes and the flow chart of investing. Without a sound knowledge
of this information it will be difficult to understand the following lessons and the
more in depth features of Point and Figure. The change of box size is always
something that takes a little getting used to and it is highly advisable that you
continue to do your own hand charting even after completing this University. The
better you familiarize yourself with three box reversals the more comfortable you
will be with your skills in PnF charting.
Another neat thing to do is pull up a chart on the DWA database, one that has
made a significant move during the trade day, and see what the chart looked like
before the major move. This way you can get a feel of the chart prior to large
swings either up or down - see what the chart was telling you ahead of time. I found
this to be extremely helpful and a fun exercise to work on daily. Getting the "feel" of
the charts will build your confidence as well. Use the DWA database to print charts
to keep by hand.
You will in time be able to look at a chart with high and low of the day and even
during the trade day, and determine the direction of the chart. This becomes almost
intuitive in time. If you still find the concept confusing review the lesson again and
of course read Tom Dorsey's book "Point and Figure Charting" in chapters 1 and 2.
His book has examples to learn from and also his personal experiences.
Part 1: Attributes of a Chart
Attributes
Box Scales
Dates and date lines
Trading bands
Numbers and letters for the months
We will now test you to find your comprehension of the subjects discussed in
Lesson 1.
Next
PnF University
PnF University
September:
August:
June:
November:
March:
December:
83
82
81
80
79
78
77
76
75
74
73
72
71
70
*
X *
X O
O X O
O X O
O X O
O X O
O --O
O
O
O
O
----O
PnF University
88
87
86
8
84
83
82
81
80
79
78
77
76
75
74
73
72
O
O
O
O
O
O
O
O
O
O
O
O
*
X
X
1
X
X
X
X
X O X
X O X
X O
X
X
X
X
*
X *
*
O
O
O
O
O
O
O
O
O
X
X
X
X
X
X
X
*
X
*
X -- * -----Top
X
*
* <--This item is...?
*
The Bearish
Resistance Line
I-95 South
The Bullish Support
Line
Positive Trading Band
A Bullish Terrier
*
--------------Med
3) Match the box size to the price range by typing the appropriate letter into
each field. You may use the same answer multiple times:
Box Size
2.00
0.75
0.25
0.50
1.00
Price Range
a: 20.00 - 100
b: None/ NA
c: 5.00 - 20.00
d: 0.00 - 5.00
e: 102 +
yes
no
yes
no
yes
no
d. X = Supply
yes
no
yes
no
PnF University
yes
no
Flowchart of Investing:
If a chart is in a column of X's, you first look
to see if the chart reversed down
into O's?
yes
no
yes
no
yes
no
yes
no
If a chart is in X's at $28 and the low for the day is $24, the high for the day is $29
and the stock closed at $24.5. The action on the chart would be...
Reversal to $24.
No change on the
chart.
If a chart is in O's at $19 1-2 and the low for the day is $19 1-8, the high for the day
is $21 7-8 and the stock closed at $21. The action on the chart would be...
The chart will fall to 19.
No change on the
chart.
Score Test
PnF University
$66.00
$60.00
$65.75
67
66
65
64
63
62
61
60
59
58
57
56
55
54
--------------------------*
X *
X <--?
---X---X-O-*-----------X--X O X O
* X
X
X
X O X O X O
X O X O X O
X O X O X O
X O X O X O
X O X O X O
X O X O
O
X-4-X-5---O-----X-9-------O <--?
O X
* 6 X
X
*
O
*
O X O 8
*
*
O X O X
*
*
O
7 X *
*-------------O-*----------*
$128
$114.125
$116
136
134
132
130
128
126
124
122
120
118
116
114
112
110
X
X
X
-----X
X
X
X
X
-----X
X
X
X
-X O X
X O X
-X O X
O
O
O
O
X O
X O
X O
--O
O
O
O
O
----O
O
O
----O
8
----O
------X <--?
X
X
X
X O X
X O X-X O X
X O
X O
<--?
X
X -----
PnF University
108
106
104
X O
X
X
O X
O
$13.95
$12.125
$12.5
14.5
14.0
13.5
13.0
12.5
12.0
11.5
11.0
10.5
10.0
9.5
9.0
8.5
8.0
7.5
7.0
X
<--?
O
*
X
O ----* ------------------X O
O
*
X O
O X ------* --------------X O <--?
O X O
*
X
X
O X O X ------* --X O X --X -O X O X O
* 7 O 8 O X
O X O X O X ------X O X O X -O X O X O X O X
X O X O X
O X O X 5 X O X O X O --O * -O X 4 X O X O 6 O X
* *
O --O X O * O X O X * -------O * *
O X O *
--* * ------O --* ------------
PnF University
PnF University
September:
August:
June:
November:
March:
December:
83
82
81
80
79
78
77
76
75
74
73
72
71
70
*
X *
X O
O X O
O X O
O X O
O X O
O --O
O
O
O
O
----O
PnF University
88
87
86
8
84
83
82
81
80
79
78
77
76
75
74
73
72
O
O
O
O
O
O
O
O
O
O
O
O
*
X
X
1
X
X
X
X
X O X
X O X
X O
X
X
X
X
*
X *
*
O
O
O
O
O
O
O
O
O
X
X
X
X
X
X
X
*
X
*
X -- * -----Top
X
*
* <--This item is...?
*
The Bearish
Resistance Line
I-95 South
The Bullish Support
Line
Positive Trading Band
A Bullish Terrier
*
--------------Med
3) Match the box size to the price range by typing the appropriate letter into
each field. You may use the same answer multiple times:
Box Size
2.00
0.75
0.25
0.50
1.00
Price Range
a: 20.00 - 100
b: None/ NA
c: 5.00 - 20.00
d: 0.00 - 5.00
e: 102 +
yes
no
yes
no
yes
no
d. X = Supply
yes
no
yes
no
PnF University
yes
no
Flowchart of Investing:
If a chart is in a column of X's, you first look
to see if the chart reversed down
into O's?
yes
no
yes
no
yes
no
yes
no
If a chart is in X's at $28 and the low for the day is $24, the high for the day is $29
and the stock closed at $24.5. The action on the chart would be...
Reversal to $24.
No change on the
chart.
If a chart is in O's at $19 1-2 and the low for the day is $19 1-8, the high for the day
is $21 7-8 and the stock closed at $21. The action on the chart would be...
The chart will fall to 19.
No change on the
chart.
Score Test
PnF University
The chart above depicts the first style of Point & Figure charts. Over the years, they have
evolved. Today, the price is located on the vertical axis and the "figures" are replaced with X's
and O's. X's represent demand and are always moving up the chart while O's represent supply
and are always moving down the chart.
This methodology was prominent in the 1960's but then dropped out of favor. This form of
technical analysis is unique and to become a craftsman requires study. By attending this
on-line University you are well on your way to becoming a craftsman. You will learn more
http://208.149.108.67/cgi-bin/foxweb.exe/D:\foxap...wuniv?email=neowaver@hotmail.com&doc=history.html (1 of 2) [4/19/2001 8:39:37 PM]
PnF University
PnF University
ABCDEFGHIJKLMNOPQRSTUVWXYZ
Please email if there are any terms that need to be added to the glossary.
10 Week Moving Stocks that trade above their own 10 week moving average.
Average
Maintained for different universes such as NYSE and OTC as
well as different sectors.
Base
Bear Alert
Bearish Triangle
BOT
BRL
BSL
A bullish percent chart reversing into X's from below the 30%
level.
A bullish percent chart in a column of X's that has exceeded the
Bull Confirmed
previous column of X's.
A bullish percent chart in Bull Confirmed status that reverses
Bull Correction
into O's below 70%.
A combination pattern -- the triple top buy signal followed by
Bullish Catapult
the double top buy signal.
Bull Alert
PnF University
Bullish Percent
DJBB
Double Bottom When a column of O's exceeds the previous column of O's.
Double Top
Dow Jones 20
Bond Average
High Low Index. This is one if our primary short term indicators
and can be kept on any universe of stocks. It is a 10 day
High Low Index
moving average of the following calculation -[(New Highs)/(New Highs + New Lows)].
Horizontal Price A price count determined from the break of a large base formed
Objective
in the chart.
Middle of the Weekly Distribution Trading band. Shown on
MED
trend charts.
A proprietary mathematical calculation based on the 1 week
Momentum
moving average versus the 5 week, with importance placed on
changes from negative to positive.
Negative Trend When a stock is trading below its Bearish Resistance Line.
NYSE Bullish
Percent
Optionable
A percentage of stocks taken from the optionable stock
Bullish Percent universe that are on PnF buy signals.
OTC Bullish
Percent
Positive Trend
Pullback
Relative
Strength
Sell signal
PnF University
Shakeout
Support Line
TOP
Trend Chart
Triple Bottom
Triple Top
Vertical Price
Objective
Weekly
Distribution
Trading Bands
ABCDEFGHIJKLMNOPQRSTUVWXYZ
PnF University
PnF University
PnF University
PnF University
PnF University
PnF University
Welcome:
Lesson 2:
Introduction
PnF University
Welcome:
Lesson 2:
PnF University
2) Over
the next
few
weeks
demand
once
again
creeps
back into
the stock
and
causes the price to rise to $60 per
share. This is causes a three-box
reversal back up into a column of X's,
and IBM now sits at the same level that
previously caused supply to enter the
market.
3) The
question
now is
whether
the
sellers
that
forced the
stock
back
before
are still there. The only way to find out if
the sellers are still operating at that price
is to see how IBM negotiates that level.
Double Bottom:
PnF University
1) In
this
Summary:
Supply wins and the probability of lower prices
come into play. The reason supply overtook
demand is not important. What is important is
knowing that supply is in control, for in the end,
supply and demand cause stocks to move up and
down and nothing else.
PnF University
More Examples:
Here the stock rises to $60 a
second time where it is
repelled. This shows there is
resistance at that level. The
column of O's exceeding the
previous column of O's gives
the double botom sell signal,
one of the most basic patterns.
At this point we do not have
enough pieces of the puzzle to
say whether to sell the stock.
As we conintue through the
university all the different
pieces will start to come
together.
This stock found good support
at 54. This is clearly shown on
the chart as the price where
columns of O's stopped. This
is one of the great advantages
of Point and Figure charts.
They are as clear as it gets.
There is no mistaking whether
a stock gave a buy or sell
signal. In this example, after
holding the support, demand
regains control and exceeds
the previous top at $57 giving
the double top buy signal.
The Bullish Signal
We add one more dimension, an
added clue, to the pattern this
time. In this next pattern, the last
column of O's does not extend
down as low as the previous
column of O's. We call that a rising
bottom. It signifies that supply is
becoming less a factor in driving
the stock. On the other side of the
coin, demand is getting stronger as
the last column of X's exceeds the
previous column of X's giving a
double top buy signal. The rising
bottom shows us that supply is
getting weaker providing added
guidance when evaluating the
supply-demand relationship of the
underlying stock.
The Bearish Signal
PnF University
The Bullish and Bearish Signals here are part of Double Top/Double Bottom
patterns but when analyzing charts with all patterns types recognizing a series of
higher bottoms and tops or lower tops and bottoms is crucial in making the right
trade or investment decision.
So far we have discussed the Double Bottom and Double Top. All other other
patterns we will cover are expansions of this basic form. By now, you can see how
simple this method is to grasp.
Next
PnF University
There are many reasons why a stock will encounter supply at certain levels. Think back
to a time when you bought stock thinking it was at a bottom or at least an opportune
price level to buy. Instead of rising, the stock immediately declined. We have all had
experiences like that. The thought that probably crossed your mind as you saw the
stock lose value was that if the stock got back to even you were out! This is a perfectly
normal human reaction. When you place that order to get out at your break-even point,
you are in essence creating supply at that level. If more sellers are willing to sell their
stock at that level than buyers are willing to buy, the stock will decline. The only way we
know whether the selling pressure has been exhausted at a particular level is if the
stock is able to exceed that price. If the stock is repelled again, the sellers are still
there. The more times a stock pulls back from a resistance level, the stronger the
breakout will be when it comes. It was said years ago that the degree to which a stock
will rise is in exact proportion to the time the stock took in preparation for that move. In
other words, the wider the base from which a stock breaks out the higher the stock will
rise. This is why we consider the triple top break a stronger pattern than the double top.
Triple Bottom Sell Signal.
The Triple Bottom sell signal, like the Triple Top, has a high degree of reliability. It is
characterized by a stock falling to an area of support three times. The first two times
the stock holds and reverses up. The third time there is not enough demand to cause
the chart to reverse and instead it exceeds the two previous bottoms giving the triple
bottom sell signal.
PnF University
Consider
for
a
PnF University
Bullish Catapult
First the Triple
Then the Double
Top...
Top...
Completed:
A triple top
followed
by a double top
break.
Notice the Triple Top buy signal followed by the pullback into a column of O's. Notice
how the column produces a higher bottom. The resumption of trend completes the
Catapult by giving a Double Top buy signal. To better understand what the Catapult is
saying, let's look at each piece of the pattern as illustrated above.
1.)The Triple Top is
saying that the stock has
a very high probability of
rising in price, assuming
the market is in a bullish
mode.
In fact, this type of pattern
has a success probability
of 87.5% in bull markets.
2.)The subsequent
reversal producing a
higher bottom
suggests that supply
is beginning to dry up
or become a less
significant factor.
3.)The
resumption of
trend and
subsequent
Double Top buy
signal simply
confirms the
Triple Top. This
is why it is called
a confidence
builder.
Next
PnF University
Welcome:
Lesson 2:
Bearish Catapult
This can be interpreted exactly opposite the Bullish Catapult formation and is particularly
useful in timing short sales as it clearly shows supply in control. Watch carefully for this
pattern because it suggests lower prices from the underlying stock. Below is an example of
how it is formed.
First the
Triple Bottom ...
Then the
Then the Double
Double Bottom... Bottom Break...
Completed:
A triple bottom followed
by a double bottom break
These two signals together clearly show supply coming into control of the stock and demand
drying up.
PnF University
Bullish Catapult
Bearish Catapult
Bearish Triangle
If the pattern breaks down the match is won by supply.
The Double Bottom sell signal suggests that the
probability is lower prices in the stock.
PnF University
This pattern is basically the same as the triple top and triple bottom with one exception. The
testing of the support or resistance level is not completed in three consecutive columns. For
example, a stock may rally and test 55 twice, then on the third trip back up it only reaches 53
before it pulls back again. Then on the fourth atempt it is able to break the 55 level. The
stock still exceeds the 55 level it tested three times but there was a "spread" between the
second and third atempt. This is one that is best understood by looking at an example.
Spread Triple Top
A gap in between
three columns of X's
at the same level.
The same philosophy applies with these patterns as the Triple Top and Bottom. We will take
a look from the Triple Top perspective. In each case, the stock rises to a certain price level
and is repelled two times. The third attempt at that price is successful by the stock moving
through the level shown by a column of X's exceeding the point of resistance. Since the
stock was repelled twice at that same level, there are apparently sell orders there. The
reason is not important. What is important is that you know there are sellers at that particular
level. The only way to know if demand can overtake the selling pressure is to see how the
stock negotiates the level again. Simply stated, if the stock is repelled again at this level of
resistance, the sellers are still there. You need not know any more. If the stocks exceeds that
level, then demand has overcome the supply that previously caused it to reverse.
Notice that in the following two patterns, the stocks are trading at the same price. Consider
that both stocks are fundamentally sound and each is being recommended by a major firm
on Wall Street. Both stocks are in the same industry group and pay about the same dividend.
You have studied the fundamentals of the two stocks and are now trying to determine which
stock to buy. It's the moment of truth. Which stock do you select?
Stock A: Spread Triple Top
Without the chart patterns shown here, you would be in a quandary. Looking at the
fundamental data alone, both stocks are equal, therefore both stocks should do about as well
http://208.149.108.62/cgi-bin/foxweb.exe/D:\foxa...wuniv?email=neowaver@hotmail.com&lesson=2&page=4 (3 of 4) [4/19/2001 8:45:46 PM]
PnF University
in the future. Not so. If you had the benefit of evaluating the Point and Figure charts the
selection process would become much easier. With the information and charts above which
stock do you select? It doesn't take an in-depth understanding of this method to determine
Stock A is on a buy signal with the probability of higher prices and Stock B is on a sell signal
with lower prices likely.
This simple exercise shows why charts are so important and why you can achieve the best
results in the market when you use both fundamental and technical analysis.
Next
PnF University
Welcome:
Lesson 2:
PnF University
PnF University
PnF University
to 19.
Next
PnF University
Welcome:
Lesson 2:
PnF University
1:
Find the last sell signal on the chart
2:
Find the column of X's that create the buy
signal after the last sell signal.
3:
4:
Determine if the run in the column of X's Count the column of X's with the buy
has been terminated by a reversal.
signal.
5:
Determine the price level at the bottom
of the column of X's.
6:
Start your calculation.
PnF University
Next
PnF University
Welcome:
Lesson 2:
2:
Find the column of O's that create the
sell signal after the last buy signal.
PnF University
3:
Determine if the run in the column of O's
has been terminated by a reversal.
4:
Count the column of O's with the sell
signal.
5:
Determine the price level at the top of the
column of O's.
6:
Start your calculation.
Formula: (# O's)(2)(box size)-Top O =
PO
There were 10 O's in the column.
10 x 2 = 20.
20 x 1 (box size) = 20.
31 - 20 (top O at the $31 level). = 11
11 is the Vertical Price objective.
Next
PnF University
Welcome:
Lesson 2:
Bullish horizontal
count.
Once a buy signal is
given, count across
the base the stock
has built.
Multiply the number
of columns across
the formation by 3
and then multiply
that product by the
value per box.
Add this number to
the bottom of the
formation.
PnF University
2:
Find the widest part of the base
unbroken, that can be counted.
3:
Count the columns.
4:
Find the bottom of the base. Sometimes
this is a judgment call too.
5:
Calculate the PO.
Formula:
(# Col. across the base)(3)(box size ) + bottom of base = PO
Widest part of formation is 7 boxes.
7 x 3 (three box reversal) = 21
21 x 1 (box size) = 21.
Add 21 to the bottom of the base
which is 20
21+ 20 = 41.
Horizontal Price objective is 41.
Next
PnF University
PnF University
Welcome:
Lesson 2:
2.
Find the widest part of the base unbroken,
that can be counted.
3:
Count the columns.
4:
Find the top of the base. Sometimes this is a
judgment call .
PnF University
5:
Calculate the PO.
Formula: (# boxes across)(2)(box size)- Top of base = PO
Widest part of formation is 8 boxes.
8 x 2 (bearish is 2) = 16
16 x 1 (box size) = 16
Subtract 16 from the top of the base which is 34
34 -16 = 18
Horizontal Price objective is 18.
Next
PnF University
Welcome:
Lesson 2:
Examples:
0.25 Box Size.
3.50
X <--10 X's.
3.25
X O
3.00
X O
2.75
X O
2.50
X
X
2.25
X
X
X
2.00
X O X O X
1.75
X O X O X
1.50
O
O X
1.25
O X<-Bottom X.
1.00
O
(10)(3) = (30)(.25) = 7.5 + 1.25 = 8.75.
17.00
X <--10 X's.
16.50
X O
16.00
X O
15.50
X O
15.00
X
X
14.50
X
X
X
14.00
X O X O X
13.50
X O X O X
13.00
O
O X
12.50
O X<-Bottom X.
12.00
O
(10)(3) = (30)(.50) = 15 + 12.50 = 27.50.
PnF University
30
X <--10 X's.
29
X O
28
X O
27
X O
26
X
X
25
X
X
X
24
X O X O X
23
X O X O X
22
O
O X
21
O X<-Bottom X.
20
O
(10)(3) = (30)(1) = 30 + 21 = 51.
120
X <--10 X's.
118
X O
116
X O
114
X O
112
X
X
110
X
X
X
108
X O X O X
106
X O X O X
104
O
O X
102
O X<-Bottom X.
100
O
(10)(3) = (30)(2) = 60 + 102 = 162.
You can see here how the momentum changes as the box sizes become higher.
Bearish Vertical Counts:
Box Size
0.25
0.50
1.00
2.00
Examples:
0.25 Box Size.
5.50
X
5.00
X
X O
4.75 X
X O X O
4.50 X O X O X O
4.25 X O
O
O
4.00
O
3.75
3.50
(5)(2) = (10)(.25) = 2.5.
15.50
X
15.00
X
X
14.55 X
X O X
14.00 X O X O X
13.50 X O
O
13.00
12.50
12.00
5 -2.5 = 2.5. (5)(2) = (10)(.50) = 5
<-Top O
X
X
X
<--5 O's
X
X
X
X
X O X
X O X O X
X O
O
O
O
O
O
O
<-Top O
X
X
X
<--5 O's
15 - 5 = 10.
<-Top O
X
X
X
<--5 O's
152
150
148
146
144
142
140
138
X
X
X
X
X O X
X O X O X
X O
O
O
O
O
O
O
<-Top O
X
X
X
<--5 O's
PnF University
(5)(2) = (10)(1) = 10
50 -10 = 40.
(5)(2) = (10)(2) = 20
150 - 20 = 130.
For Horizontal Counts it is the same thing. You take the box size and put it into the
appropriate slot for calculation.
Bullish Horizontal Count.
Box
Size
0.25
0.50
1.00
2.00
Formula
(boxes)(2) = (?)(.25) = ? Top of
base -? = PO
(boxes)(2) = (?)(.50) = ? Top of
base -? = PO
(boxes)(2) = (?)(1) = ? Top of
base -? = PO
(boxes)(2) = (?)(2) = ? Top of
base -? = PO
PnF University
Welcome:
Lesson 2:
PnF University
Next
PnF University
Welcome:
Lesson 2:
84
83
82
81
80
79
78
77
76
75
74
73
72
71
70
69
68
67
66
65
64
63
62
61
60
59
58
57
X
X
<--Stock almost hit price objective.
X O X O
This is why we say it is a guide not
an absolute.
X O X O
X O X O
--------------X O X O X ------X O X O X O
X O X O X O
X O
O X O
X
O X O
--------------X ----O --------3
X
X
X
--------------X --------------X
X
X
X
X
X O
X <--Buy Signal. This is the column of X's to count.
--X O X --X O X ------------X O X O X O <--Reversal to O's terminating the coulumn of X's.
X O 2 O X
X O X O X
X O X O X
--X O --O X ------------* X
O <--Sell Signal.
X
O X <--Bottom X
1
O
*
PnF University
53
52
51
50
49
48
47
45
44
43
42
41
40
39
38
37
36
35
34
A
X
X
O X O X
O X O X
O X 9 X
8
O
<--Buy Signal
X
O
Top
X
O
-------------X
O -------------------X
O
7
O
X
X
O <--Sell Signal. Count this column of O's
---------X O X --------O X <--Reversal into X's terminating column of O's.
X O X
O X O X O X
X O *
X
5 O
O X O X O X O
X O
X O X
O
O X O X O X
X O
X O X
O X O X B X O X O
-----X O ------------------O X O X O X O X
Med
X
4
O
O
O X O X
X O X
O X O
X O X
O X
3
O X
-----------------------------------O -<--Stock came very close
to the bearish vertical count
59
|
58
|
X
57
|
X
X O
56
|
X O
X O
55 -----+---X --X O ----------------X O
54 X
|
X O X O
X O
53 X O |
X O X O X
X
X
X O
52 X O |
X O X O X O X O
X O X O
51 X O X
X O X O X O X O X
X O X O
50 -X O X O X O X O X O X O X O X 3 X O
49 X O X O X O X O
O
O X O X O X
48 X O X 1 X O X
O X O X O
47 X O X O X O 2
O X O
46 X O | O X O X
O
45 -X --| O X O X --------------------*
44 X
| O
O <--Base support level.
X <--Breakout of base.
X
X
X
X -----X
X
X
Med
X
<--Widest part
of base unbroken.
*
-------
PnF University
Welcome:
Lesson 2:
Wrap Up
The battle between Supply and Demand is at the heart of Point and Figure Charting.
From this chapter you have all the basics needed to understand patterns and price
objectives. You can see how the price movement in a stock creates the patterns. These
patterns tell the story of the battle between supply or demand.
Once you have a good understanding of how charts develop and build your confidence with
practice, you will be able to recognize chart development quickly and accurately. Once you
know the basics you can apply your understanding to any PnF chart.
Price objective is a guide, not an absolute. It is useful in helping to determine the risk reward
parameters of a trade. Always remember that PnF is an art form, not a science.
Lesson 2 Contents:
Part 1: Chart Patterns
Battle between supply and demand
Double Top/Double Bottom
Triple Top/Triple Bottom
Catapult formations
Triangle formations
Spread Triple Tops
Shakeout formations
Signal Reversed Patterns
Long Tail Down
High Pole
We will now test you to find your comprehension of the subjects discussed in Lesson 2.
Next
PnF University
Welcome:
Lesson 2:
PnF University
Next
PnF University
Welcome:
Lesson 2:
84
83
82
81
80
79
78
77
76
75
74
73
72
71
70
69
68
67
66
65
64
63
62
61
60
59
58
57
X
X
<--Stock almost hit price objective.
X O X O
This is why we say it is a guide not
an absolute.
X O X O
X O X O
--------------X O X O X ------X O X O X O
X O X O X O
X O
O X O
X
O X O
--------------X ----O --------3
X
X
X
--------------X --------------X
X
X
X
X
X O
X <--Buy Signal. This is the column of X's to count.
--X O X --X O X ------------X O X O X O <--Reversal to O's terminating the coulumn of X's.
X O 2 O X
X O X O X
X O X O X
--X O --O X ------------* X
O <--Sell Signal.
X
O X <--Bottom X
1
O
*
PnF University
53
52
51
50
49
48
47
45
44
43
42
41
40
39
38
37
36
35
34
A
X
X
O X O X
O X O X
O X 9 X
8
O
<--Buy Signal
X
O
Top
X
O
-------------X
O -------------------X
O
7
O
X
X
O <--Sell Signal. Count this column of O's
---------X O X --------O X <--Reversal into X's terminating column of O's.
X O X
O X O X O X
X O *
X
5 O
O X O X O X O
X O
X O X
O
O X O X O X
X O
X O X
O X O X B X O X O
-----X O ------------------O X O X O X O X
Med
X
4
O
O
O X O X
X O X
O X O
X O X
O X
3
O X
-----------------------------------O -<--Stock came very close
to the bearish vertical count
59
|
58
|
X
57
|
X
X O
56
|
X O
X O
55 -----+---X --X O ----------------X O
54 X
|
X O X O
X O
53 X O |
X O X O X
X
X
X O
52 X O |
X O X O X O X O
X O X O
51 X O X
X O X O X O X O X
X O X O
50 -X O X O X O X O X O X O X O X 3 X O
49 X O X O X O X O
O
O X O X O X
48 X O X 1 X O X
O X O X O
47 X O X O X O 2
O X O
46 X O | O X O X
O
45 -X --| O X O X --------------------*
44 X
| O
O <--Base support level.
X <--Breakout of base.
X
X
X
X -----X
X
X
Med
X
<--Widest part
of base unbroken.
*
-------
PnF University
Welcome:
Lesson 2:
Wrap Up
The battle between Supply and Demand is at the heart of Point and Figure Charting.
From this chapter you have all the basics needed to understand patterns and price
objectives. You can see how the price movement in a stock creates the patterns. These
patterns tell the story of the battle between supply or demand.
Once you have a good understanding of how charts develop and build your confidence with
practice, you will be able to recognize chart development quickly and accurately. Once you
know the basics you can apply your understanding to any PnF chart.
Price objective is a guide, not an absolute. It is useful in helping to determine the risk reward
parameters of a trade. Always remember that PnF is an art form, not a science.
Lesson 2 Contents:
Part 1: Chart Patterns
Battle between supply and demand
Double Top/Double Bottom
Triple Top/Triple Bottom
Catapult formations
Triangle formations
Spread Triple Tops
Shakeout formations
Signal Reversed Patterns
Long Tail Down
High Pole
We will now test you to find your comprehension of the subjects discussed in Lesson 2.
Next
PnF University
Welcome:
Lesson 2:
PnF University
2) Over
the next
few
weeks
demand
once
again
creeps
back into
the stock
and
causes the price to rise to $60 per
share. This is causes a three-box
reversal back up into a column of X's,
and IBM now sits at the same level that
previously caused supply to enter the
market.
3) The
question
now is
whether
the
sellers
that
forced the
stock
back
before
are still there. The only way to find out if
the sellers are still operating at that price
is to see how IBM negotiates that level.
Double Bottom:
PnF University
1) In
this
Summary:
Supply wins and the probability of lower prices
come into play. The reason supply overtook
demand is not important. What is important is
knowing that supply is in control, for in the end,
supply and demand cause stocks to move up and
down and nothing else.
PnF University
More Examples:
Here the stock rises to $60 a
second time where it is
repelled. This shows there is
resistance at that level. The
column of O's exceeding the
previous column of O's gives
the double botom sell signal,
one of the most basic patterns.
At this point we do not have
enough pieces of the puzzle to
say whether to sell the stock.
As we conintue through the
university all the different
pieces will start to come
together.
This stock found good support
at 54. This is clearly shown on
the chart as the price where
columns of O's stopped. This
is one of the great advantages
of Point and Figure charts.
They are as clear as it gets.
There is no mistaking whether
a stock gave a buy or sell
signal. In this example, after
holding the support, demand
regains control and exceeds
the previous top at $57 giving
the double top buy signal.
The Bullish Signal
We add one more dimension, an
added clue, to the pattern this
time. In this next pattern, the last
column of O's does not extend
down as low as the previous
column of O's. We call that a rising
bottom. It signifies that supply is
becoming less a factor in driving
the stock. On the other side of the
coin, demand is getting stronger as
the last column of X's exceeds the
previous column of X's giving a
double top buy signal. The rising
bottom shows us that supply is
getting weaker providing added
guidance when evaluating the
supply-demand relationship of the
underlying stock.
The Bearish Signal
PnF University
The Bullish and Bearish Signals here are part of Double Top/Double Bottom
patterns but when analyzing charts with all patterns types recognizing a series of
higher bottoms and tops or lower tops and bottoms is crucial in making the right
trade or investment decision.
So far we have discussed the Double Bottom and Double Top. All other other
patterns we will cover are expansions of this basic form. By now, you can see how
simple this method is to grasp.
Next
PnF University
Welcome:
Lesson 2:
PnF University
2) Over
the next
few
weeks
demand
once
again
creeps
back into
the stock
and
causes the price to rise to $60 per
share. This is causes a three-box
reversal back up into a column of X's,
and IBM now sits at the same level that
previously caused supply to enter the
market.
3) The
question
now is
whether
the
sellers
that
forced the
stock
back
before
are still there. The only way to find out if
the sellers are still operating at that price
is to see how IBM negotiates that level.
Double Bottom:
PnF University
1) In
this
Summary:
Supply wins and the probability of lower prices
come into play. The reason supply overtook
demand is not important. What is important is
knowing that supply is in control, for in the end,
supply and demand cause stocks to move up and
down and nothing else.
PnF University
More Examples:
Here the stock rises to $60 a
second time where it is
repelled. This shows there is
resistance at that level. The
column of O's exceeding the
previous column of O's gives
the double botom sell signal,
one of the most basic patterns.
At this point we do not have
enough pieces of the puzzle to
say whether to sell the stock.
As we conintue through the
university all the different
pieces will start to come
together.
This stock found good support
at 54. This is clearly shown on
the chart as the price where
columns of O's stopped. This
is one of the great advantages
of Point and Figure charts.
They are as clear as it gets.
There is no mistaking whether
a stock gave a buy or sell
signal. In this example, after
holding the support, demand
regains control and exceeds
the previous top at $57 giving
the double top buy signal.
The Bullish Signal
We add one more dimension, an
added clue, to the pattern this
time. In this next pattern, the last
column of O's does not extend
down as low as the previous
column of O's. We call that a rising
bottom. It signifies that supply is
becoming less a factor in driving
the stock. On the other side of the
coin, demand is getting stronger as
the last column of X's exceeds the
previous column of X's giving a
double top buy signal. The rising
bottom shows us that supply is
getting weaker providing added
guidance when evaluating the
supply-demand relationship of the
underlying stock.
The Bearish Signal
PnF University
The Bullish and Bearish Signals here are part of Double Top/Double Bottom
patterns but when analyzing charts with all patterns types recognizing a series of
higher bottoms and tops or lower tops and bottoms is crucial in making the right
trade or investment decision.
So far we have discussed the Double Bottom and Double Top. All other other
patterns we will cover are expansions of this basic form. By now, you can see how
simple this method is to grasp.
Next
PnF University
Welcome:
Lesson 2:
Bearish Catapult
This can be interpreted exactly opposite the Bullish Catapult formation and is particularly
useful in timing short sales as it clearly shows supply in control. Watch carefully for this
pattern because it suggests lower prices from the underlying stock. Below is an example of
how it is formed.
First the
Triple Bottom ...
Then the
Then the Double
Double Bottom... Bottom Break...
Completed:
A triple bottom followed
by a double bottom break
These two signals together clearly show supply coming into control of the stock and demand
drying up.
PnF University
Bullish Catapult
Bearish Catapult
Bearish Triangle
If the pattern breaks down the match is won by supply.
The Double Bottom sell signal suggests that the
probability is lower prices in the stock.
PnF University
This pattern is basically the same as the triple top and triple bottom with one exception. The
testing of the support or resistance level is not completed in three consecutive columns. For
example, a stock may rally and test 55 twice, then on the third trip back up it only reaches 53
before it pulls back again. Then on the fourth atempt it is able to break the 55 level. The
stock still exceeds the 55 level it tested three times but there was a "spread" between the
second and third atempt. This is one that is best understood by looking at an example.
Spread Triple Top
A gap in between
three columns of X's
at the same level.
The same philosophy applies with these patterns as the Triple Top and Bottom. We will take
a look from the Triple Top perspective. In each case, the stock rises to a certain price level
and is repelled two times. The third attempt at that price is successful by the stock moving
through the level shown by a column of X's exceeding the point of resistance. Since the
stock was repelled twice at that same level, there are apparently sell orders there. The
reason is not important. What is important is that you know there are sellers at that particular
level. The only way to know if demand can overtake the selling pressure is to see how the
stock negotiates the level again. Simply stated, if the stock is repelled again at this level of
resistance, the sellers are still there. You need not know any more. If the stocks exceeds that
level, then demand has overcome the supply that previously caused it to reverse.
Notice that in the following two patterns, the stocks are trading at the same price. Consider
that both stocks are fundamentally sound and each is being recommended by a major firm
on Wall Street. Both stocks are in the same industry group and pay about the same dividend.
You have studied the fundamentals of the two stocks and are now trying to determine which
stock to buy. It's the moment of truth. Which stock do you select?
Stock A: Spread Triple Top
Without the chart patterns shown here, you would be in a quandary. Looking at the
fundamental data alone, both stocks are equal, therefore both stocks should do about as well
http://208.149.108.69/cgi-bin/foxweb.exe/D:\foxa...wuniv?email=neowaver@hotmail.com&lesson=2&page=4 (3 of 4) [4/19/2001 8:55:49 PM]
PnF University
in the future. Not so. If you had the benefit of evaluating the Point and Figure charts the
selection process would become much easier. With the information and charts above which
stock do you select? It doesn't take an in-depth understanding of this method to determine
Stock A is on a buy signal with the probability of higher prices and Stock B is on a sell signal
with lower prices likely.
This simple exercise shows why charts are so important and why you can achieve the best
results in the market when you use both fundamental and technical analysis.
Next
PnF University
PnF University
PnF University
Welcome:
Lesson 3:
Introduction
In any market there are always leaders and laggards. Message Board
Our goal as investors, is to have a portfolio of leaders,
not laggards. The tool we use to determine which
stocks and sectors are the leaders is Relative Strength.
Lesson 3 Contents:
Part 1: Relative Strength
Evaluating
Potential Scenarios
Formula
Part 2:
Coca-Cola Example
Wal-Mart Example
Various Examples
FoxWeb
61
4.0,MSIE 5.0
CKREIF
Important!
If you are sending email, please use Copy/Paste to put this information into your email. If we don't have
this info, we can't find the problem.
Error message: User program "File 'exercises.html'" is invalid, non-existent or has not been compiled
Code with error:
Lineno: 0
Program: FoxWeb
dbf:
recno: 0
What were you doing (be Very specific):
Email addresses to report a...
DWA Support or call (804) 320-8511
Database error
an emergency
DWA Support
(Page Administrator)
PnF University
PnF University
Lesson 3:
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1.00
0.75
0.50
0.25
0.00
----+-+-+--------------| | |
----| | | -------------| | |
----| | 3 -------------| | X O
----| | X O -----------| | 2 5
----| | X O -----------| | 1
----| | X -------------| | C
----| | X -------------| | X
----| | B -------------| | 9
----| | 2 -------------| | 1
----| | X -------------7 | C
----4 O 8 -------------A O 7
----8 6 X -------------7 O X
----X O | -------------1 | |
----X | | -------------X | |
----A +-+--------------9 9 9 9 0
6 7 8 9 0
PnF University
When looking at a Relative Strength Chart we examine the buy and sell signals as
well as the current column. A Relative Strength (RS) buy or sell signal lasts on
average 2 to 2 1/2 years. A column change can indicate performance for the next
6 to 8 months, so it is very important to watch as well.
At DWA there are currently two Relative Strength (RS) calculations to use; one the
standard and main RS versus the Dow Jones Industrial, and the other is one
developed by DWA, the RS versus the sector. We will concentrate primarily on the
RS versus the Dow.
RS Reading is plotted on a PnF chart. A double top signals a positive relative
strength reading and a double bottom signals a negative relative strength reading.
A RS on a "buy" signal is one that has broken a double top and an RS on a "sell"
is one that has broken a double bottom.
Positive relative strength doesn't mean the stock has to go up and vice versa. It
just means it is out performing or under performing the market. For instance, if the
market goes up 15% and a negative RS stock goes up 5%, it has under performed
just as the RS chart suggested. Conversely, if the market goes down 20% but a
positive RS stock only goes down 10% then it has done as expected, performed
better than the market.
There are four potential scenarios for a PnF chart. They are as follows:
RS on a
PnF University
Buy
signal in
a
column
of X's.
This is
the
strongest reading for an RS chart. It has been consistently out performing and still
is.
RS on a Buy signal in a column of O's. This means the stock has been
consistently out performing, is taking a breather.
RS on a Sell signal in a column of X's. The stock has been under performing
most of the time but currently may be on a run. This is good for short term traders
that are in and out of stocks.
RS on a Sell signal and in a column of O's. The worst of all RS conditions. Has
been and still is under performing the market.
Next
PnF University
Lesson 3:
The stock price is divided by the Dow close and then multiplied by 1000. This
formula gives you the RS reading which is then plotted on a Point and Figure chart.
This calculation is perfomed on a weekly basis using Tuesdays closing prices.
Consider the following example. (This example is used just to show you the math.)
Your stock is trading at $80 per share and
Dow Jones is at the 10,000 level
(numbers created for easy calculation). To
determine how your stock is trading
relative to the Dow, you would simply
divide the price of the stock by the Dow,
multiply by 1000 and then plot the
resulting number exactly as you would a
normal Point and Figure chart. If we divide
$80 by 10,000, multiply by 1000 we get a
figure of 8. This can then be plotted on a
graph similar to the one we use for plotting
the actual price of the stock. The charting
principles are the same as when updating
these charts. We first look to see if the
chart can continue in the same direction. If
not then check for a reversal.
12.5
12.0
11.5
11.0
10.5
10.0
9.5
9.0
8.5
8.0
X <-The RS plotted
Date: 2/2/??
Dow Jones: 10000
Stock Price: 80
Calculation: 80 divided by 10000 x 1000
=8
A different example...
PnF University
Date: 3/2/??
Dow Jones: 11,000.
XYZ Corp: 81.
Calculation: (81 / 11000)(1000) =
7.36
7.36 as you can see is not a
number on the chart but as with
the trend charts we either round up
or round down to the correct
amount. 7.36 is not enough to plot
7.5 so we use 7.0
Date: 3/9/??
Dow Jones: 9500
XYZ Corp: 74
Calculation: (74 / 9500)(1000) =
7.79.
The Dow has dropped as has the
stock but the RS has improved.
Like the first example 7.79 is not
enough to fill in the 8.0 box so we
mark up only to the 7.5 box.
While the stock price has fallen
and the market has fallen, the
relative strength calculation has
actually moved higher. This means
the stock is performing better
relative to the market.
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.75
X <--RS plotted.
X
X
X
X <--added another X
X
X
X
X
When starting an RS chart it is just like beginning a trend chart in PnF. You must
determine which direction the chart is heading before you can plot it. For stocks
that have been trading for some time you can get a history of the stock price and
Dow and do your own calculations to determine if the RS has been moving up or
down. In the case of an IPO however, the history is not there and you must wait for
the calculations to guide you. Just keep a running list of the readings.
Next
PnF University
Welcome:
Lesson 3:
Part 2 - Examples
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
2.75
2.50
2.25
2.00
1.75
0.25
0.00
|
----8
7
----5
A
----B
C
----X
B
----8
4
----X
A
----8
5
----B
A
----X
7
----X
X
----4
|
8 9
--5 7
| X | |
+-6 O +-------O X O |
O X 9 +-------9
O |
+---1 <--1/12/99
|
3 |
+---6 B ------|
8 X O
+---9 X O 5 --|
A | 3 X
+---+-+-O X --|
| | O
+---+-+-------|
| |
+---+-+-------|
| |
+---+-+-------|
| |
+---+-+-------|
| |
+---+-+-------|
| |
9 9 9 9 0
+-8 9 +-0 -----
Remember back to the very beginning in "Attributes of a chart" the description of the numbers and letters in the columns
of PnF chart - 1,2,3 or A, B, C? They designate the first action of a given month. We use the same numbers and letters
in a RS chart. They serve as useful guides to help you determine how a stock was performing at a given time. With so
little action on RS charts often there is no action during a given month. Below are a couple of examples of RS charts
along with their trend charts.
Some Examples:
Wal-Mart Stores (WMT).
The attributes of the chart are marked to correspond to the RS chart.
PnF University
7.5
| | |
|
7.0---+-+-+---+-----6.5
| | |
|
6.0---+-+-+---X ---5.5
| | |
C O
5.0 --+-+-X --X O --4.75 A | X O A 2<-Feb
4.50 -X O X O X ----4.25 X O X 5 X
4.00 -X 4 X 8 +-----3.75 X 5 X
|
3.50 -X 8 X --+-----3.25 X 1 X
|
3.00 -C A X --+-----2.75 X 1 X
|
2.50 -+-A 4 --+-----2.25 | C X
|
2.00 -+-1 X --+-----1.75 | O |
|
1.50 -+-+-+---+-----1.25 | | |
|<-Year
1.00 -+-+-+---+-----0.75 | | |
|
0.50 -+-+-+---+-----0.25 9 9 9 9 | 0
0.00 3 7 +-9 +-0 ---
You will notice that WMT for 1999 was trading above its BSL which you will remember as bullish.
Look at the RS chart for 1999 and you will see that in May (5) the RS reversed down, it was under performing
the market, and stayed that way until October (A) when it reversed up.
Now look at the trend chart. Find the A for October in 1999 and you will see that the chart breaks a triple top and
continues up. The RS indicated that WMT would out perform the market and we see on the trend chart that it did
in fact do well.
Look at the RS chart for 2000 where in February (2) it has again reversed down.
On the trend chart we see that WMT actually started to break down in January (1) of 2000.
Now look at the trend chart. Find the A for October in 1999 and you will see that the chart breaks a triple top and
continues up. The RS indicated that WMT would out perform the market and we see on the trend chart that it did
PnF University
in fact do well.
7.5
7.0
6.5
6.0
5.5
5.0
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1.00
0.75
0.50
0.25
0.00
| | |
|
-+-+-+---+---| | |
|
-+-+-+---X --| | |
C O
-+-+-X --X O -A | X O A 2<-*
-X O X O X ---X O X 5 X
-X 4 X 8 +----X 5 X
|
-X 8 X --+----X 1 X
|
-C A X --+----X 1 X
|
-+-A 4 --+----| C X
|
-+-1 X --+----| O |
|
-+-+-+---+----| | |
|
-+-+-+---+----| | |
|
-+-+-+---+----9 9 9 9 | 0
3 7 +-9 +-0 ---
here is the DOW chart for some of 1999 and 2000. Compare this with the
WMT RS chart.
7.5
7.0
6.5
6.0
5.5
5.0
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
| | |
|
-+-+-+---+-----| | |
|
-+-+-+---X ----| | |
C O
-+-+-X --X O --A | X O A 2<-*
-X O X O X ----X O X 5 X
-X 4 X 8 +-----X 5 X
|
-X 8 X --+-----X 1 X
|
-C A X --+------
PnF University
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1.00
0.75
0.50
0.25
0.00
X 1 X
|
-+-A 4 --+-----| C X
|
-+-1 X --+-----| O |
|
-+-+-+---+-----| | |
|
-+-+-+---+-----| | |
|
-+-+-+---+-----9 9 9 9 | 0
3 7 +-9 +-0 ---
You can see on the chart the Dow started to break down in February .
Next
PnF University
Welcome:
Lesson 3:
Part 2 - Examples
Let's walk through a trend chart and its RS chart over the course of a year.
Trend Chart
RS Chart
5.5
5.0
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
2.75
2.50
|
----A
8
----7
6
----X
C
----X
6
----3
C
----7
PnF University
6.5
6.0
5.5
5.0
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
2.75
2.50
In November, the RS reverses down and
the trend chart shows a noticeable
difference as it starts to break down. The
market during this time was starting to
improve and had given a couple of buy
signals.
| |
----+-+| |
----A +8 O
----7 O
6 O
----X B <--November
C O
----X C
6 O
----3 O
C O
----7 +-
6.5
6.0
5.5
5.0
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
2.75
2.50
| |
----+-+| |
----A +8 O
----7 O
6 O
----X B <--November
C O
----X C <--December
6 O
----3 O
C O
----7 +-
PnF University
6.5
6.0
5.5
5.0
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
2.75
2.50
| |
----+-+-----| |
----A +----8 O
----7 O X -6 O X
----X B 3 -C O X
----X C 2 -6 O X
----3 O X -C O
----7 +---
PnF University
6.5
6.0
5.5
5.0
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
2.75
2.50
Date
03/14/2000
03/13/2000
03/10/2000
03/09/2000
03/08/2000
03/07/2000
03/06/2000
03/03/2000
03/02/2000
03/01/2000
02/29/2000
02/28/2000
02/25/2000
02/24/2000
02/23/2000
02/22/2000
02/18/2000
02/17/2000
02/16/2000
02/15/2000
| |
----+-+---------| |
----A +------------8 O
----7 O X <--Top X.
6 O X
----X B 3 <--Plotted.
C O X
----X C 2 ---------6 O X
----3 O X ---------C O
----7 +--------------
Value
4.517 <--X's are added
4.624
4.734
4.458
4.210
3.981
4.001
3.919
3.677
3.811
3.764
3.904
3.955
3.592
3.661
3.688
3.676
3.775
3.610
3.557
PnF University
02/14/2000
02/11/2000
02/10/2000
02/09/2000
02/08/2000
02/07/2000
02/04/2000
02/03/2000
02/02/2000
02/01/2000
3.701
3.765
3.817
3.838
3.725
3.588
3.654
3.711
3.681
3.770
Stocks with positive relative strength have a tendency to out perform those with negative relative
strength. When making new stock commitments, try to find stocks with relative strength charts that
have turned positive within the past six months to a year. This helps ensure you have a stock with
lots of life left. Stocks whose relative strength has been positive for a long time might be close to
turning negative. This is why it is important to evaluate the relative strength chart itself rather than
simply accepting a positive or negative reading generated by a computer. Investing is still an art,
not a science.
In this example, you can see that if we
had waited until the relative strength
chart actually declined enough to
exceed a previous bottom and give a
sell signal, it would have been too late
as we would have missed to much of
the move. The reciprocal is true as well.
If a chart is so negative that its RS chart
shows a very long tail of O's down we
would call the first three-box reversal
back up the chart as turning positive.
Otherwise, by waiting for the buy signal
we would miss out on too much of a
move.
Some stocks are so strong that their relative strength charts go strait up in a long column of X's.
For the stock to turn from positive to negative relative strength, the chart would have to give a
double bottom break. When the relative strength chart has a long column of X's up, the underlying
stock would have to absolutely collapse to turn the relative strength chart negative by exceeding
its previous bottom. In this case, we will pay very close attention to the first three-box reversal in
the RS chart. In fact we would consider it negative until the RS reverses back up. In the case of
long columns we act without an actual signal. It simply makes common sense.
Human nature causes us to hang on to any thread of hope that the stock we bought was the right
one. Once all the technicals break down, we tend to look to the fundamentals to bail us out. It has
happened all too often. Even if you feel a stock is now a "good value" - don't hold your breath. A
http://208.149.108.6/cgi-bin/foxweb.exe/D:\foxap...wuniv?email=neowaver@hotmail.com&lesson=3&page=5 (5 of 6) [4/19/2001 9:10:07 PM]
PnF University
stock can stay a "good value" by not moving or, worse, drop another 10 points. Rather than take a
loss, most investors will hold on for the long term in the expectation the stock will come back. This
mentality enables the investor to maintain a portfolio of losers by ignoring the losers and taking
profits in the winners. Let profits run not losses.
Let's say you bought a stock at $30 in the software sector. Over time, the stock declines to $24
and the relative strength chart turns negative. Rather than sitting with the stock and wishing it back
up, why not find another stock around the same price in the same industry that has recently turned
positive on its relative strength chart and is both fundamentally and technically sound? Sell the bad
one and buy the good one. You have a much better chance of getting your money back with the
good stock. Always re-evaluate your stocks whenever there is a change in direction in the RS
chart.
As with all the lessons reading Tom's book along side will add some valuable information.
Next
PnF University
Welcome:
Lesson 3:
Wrap Up
Relative strength is a calculation used for all stocks and indexes. One of the most
important aspects of analyzing a chart is to know how it compares to the
performance of the market. Naturally, you want to outperform the market and
continually improve your chances at doing so.
The RS calculations have proven successful towards this goal. Even sectors must
out perform or under perform the market at some point. Stacking odds in your
favor; if the market is bullish, the sector you are invested in is out performing the
bullish market and the stock you are invested in is out performing the sector that is
out performing the market.... that is stacking the odds in your favor. We will cover
Sector Relative Strength in Lesson 5.
Lesson 3 Contents:
Part 1: Relative Strength
Evaluating
Potential Scenarios
Formula
Part 2:
Coca-Cola Example
Wal-Mart Example
Various Examples
We will now test you to find your comprehension of the subjects discussed in
Lesson 3.
Next
PnF University
( -Select One-
/ - Select One -
) ( - Select One -
) = RS Reading
yes
yes
yes
no
no
no
yes
no
Trend Chart
PnF University
Stock # 1
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1.00
X
X
1
X
X
|
|
--|
O
O
O
O
A
O
O
3
5
7
9
3
----------X
2 O ------1 O
X 5 ------X
-----------
25 ------------------- --24
X
23
X
X O
22
X
X O X O
21
X O X O X O
20 -X ------X O X O X -----Med
19.5 X O X
X O X O 7
19.0 X O X O X O --O X ---18.5 X O X O X
O X *
18.0 X O --O ------O * ---Given the RS information only,
would you buy this stock here?
Choose one
Stock # 2
3.75
2 |
|
3.50 --X O --+-------3.25
X O 7 |
3.00 -A 6 X O 7 ----2.75
| 9 X O X
2.50 --+-3 --C X ----2.25
| |
1
2.00 --+-+---+-------1.75
34
33
32
31
30
29
28
27
26
25
24
23
*
--* 4
X
X
X
X O X
X O 3
--O X
O X
O *
--X
O X
O X
O
X
X O X
X O X
--7 O X -O X O * Med
O X *
5 *
*
---------Bot
--*
*
Choose one
Choose one
Stock #3
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1.00
--|
8
---7
6
---4
X
---X
7
---|
|
|
O
O
9
A
O
O
O
--|
|
7 |
6 O
4 O
1 8
X |
X |
--|
-----X
6 O-X O
X O------------
31
X
30---------X O
29
X
X O
28
X O X O
27
X O X O
26
6 O
O
25
O X ----O
24
O X
O
23
O X
22
O
X
----X
X
X
X
X
X O X
X O X
7
---*
O --O
O
Med
O
PnF University
Choose one
Stock #4
2.50
2.25
2.00
1.75
1.50
1.25
1.00
0.75
----|
|
----X
B
----X
X
----5
X
|
|
|
O
O
O
2
|
|
X
X
C
X
X
|
|
|
|
O
O
3
B
|
|
3
X
2
X
X
--O
O 5
---
-----
28
27
26
25
---------6
24 *
X
23
*
X
22
X *
X
21
X O *
X
20
X O --* X
19.5 X O X
X
19.0 X O X O X
18.5
O X O X
X
X O
X O
--X O X O 7 O X
Med
O X O X
O X O
O X
O X ----O X
O ----* *
Score Test
Submit
PnF University
There are many reasons why a stock will encounter supply at certain levels. Think back
to a time when you bought stock thinking it was at a bottom or at least an opportune
price level to buy. Instead of rising, the stock immediately declined. We have all had
experiences like that. The thought that probably crossed your mind as you saw the
stock lose value was that if the stock got back to even you were out! This is a perfectly
normal human reaction. When you place that order to get out at your break-even point,
you are in essence creating supply at that level. If more sellers are willing to sell their
stock at that level than buyers are willing to buy, the stock will decline. The only way we
know whether the selling pressure has been exhausted at a particular level is if the
stock is able to exceed that price. If the stock is repelled again, the sellers are still
there. The more times a stock pulls back from a resistance level, the stronger the
breakout will be when it comes. It was said years ago that the degree to which a stock
will rise is in exact proportion to the time the stock took in preparation for that move. In
other words, the wider the base from which a stock breaks out the higher the stock will
rise. This is why we consider the triple top break a stronger pattern than the double top.
Triple Bottom Sell Signal.
The Triple Bottom sell signal, like the Triple Top, has a high degree of reliability. It is
characterized by a stock falling to an area of support three times. The first two times
the stock holds and reverses up. The third time there is not enough demand to cause
the chart to reverse and instead it exceeds the two previous bottoms giving the triple
bottom sell signal.
PnF University
Consider
for
a
PnF University
Bullish Catapult
First the Triple
Then the Double
Top...
Top...
Completed:
A triple top
followed
by a double top
break.
Notice the Triple Top buy signal followed by the pullback into a column of O's. Notice
how the column produces a higher bottom. The resumption of trend completes the
Catapult by giving a Double Top buy signal. To better understand what the Catapult is
saying, let's look at each piece of the pattern as illustrated above.
1.)The Triple Top is
saying that the stock has
a very high probability of
rising in price, assuming
the market is in a bullish
mode.
In fact, this type of pattern
has a success probability
of 87.5% in bull markets.
2.)The subsequent
reversal producing a
higher bottom
suggests that supply
is beginning to dry up
or become a less
significant factor.
3.)The
resumption of
trend and
subsequent
Double Top buy
signal simply
confirms the
Triple Top. This
is why it is called
a confidence
builder.
Next
PnF University
Welcome:
Lesson 2:
PnF University
PnF University
PnF University
to 19.
Next
PnF University
Welcome:
Lesson 4:
Introduction
Message Board
Lesson 4 Contents:
Part 1: NYSE Bullish Percent
Market Timing
Attributes of a Bullish Percent Chart
NYSE Bullish Percent Risk Levels.
Historical NYSE BP Chart
PnF University
Welcome:
Lesson 4:
Technical Indicators
The Myth About Market Timing.
You have heard for years that market timing can't be done. The market averages a
return of about 12% a year and to try and do better is just a frugal attempt. The buy
and hold strategy is the best for long term investors. There's more to it than just
buy and hold as we will explain and you've probably come to realize on your own.
Best Days vs Worst Days.
Consider the following argument put forward by the Buy and Hold proponents.
If you missed the ten best days in the market from '90-'98, your returns would be
140% versus a buy and hold strategy of 248%. The other half of that story is if you
missed the ten worst days during that same period, your returns were 473%. Since
the best days and the worst days often happen near one another, we looked at
missing the 10 best and 10 worst days. Excluding those days your return was
261%!
Market Timing Does Work.
"In order to be a successful risk management investment strategy, market timing
does not have to be perfect. Despite belief to the contrary, market timing does not
target getting in and out of the market at the absolute bottoms or tops. It does,
however, strive to get an investor's funds out of the market before a major bear
market devastates the portfolio. Market timing's first and foremost priority is the
preservation of capital."
Source: "Lasting Wealth is a Matter of Timing" by Sosnowy
Do You Feel Lucky?
The assumption of the often quoted Buy and Hold studies is that you won't need
your money for 50 years or more. These studies assume you aren't buying a home,
sending children to college or retiring in the next 50 years. A more important
question is...
"Where are you getting on the investment train?"
If you got on the train at the beginning of the 1973-1974 Bear Market, it took 7.6
years to get back to even.
Do you have 7.6 years to spare? Do you not need your money for 7.6 years?
NYSE Bullish Percent:
We use the Bullish Percent indices to assess risk in the market.
http://208.149.108.62/cgi-bin/foxweb.exe/D:\foxa...wuniv?email=neowaver@hotmail.com&lesson=4&page=2 (1 of 3) [4/19/2001 9:14:34 PM]
PnF University
The concept began in the 1940's but it wasn't until 1955 that A.W. Cohen actually
created the NYSE Bullish Percent. We often refer to this indicator as our main
coach for NYSE stocks. It tells us whether to have the offensive or defensive team
on the field. X's mean offense and O's mean defense. This indicator tells you who
has the ball. Based on a University of Chicago study 80% of the risk in any stock is
based in the market and the sector. However, they found that most people spent
80% of their time on stock selection. The NYSE Bullish Percent provides the insight
needed in determining the risk in the market. The more you learn about this
indicator, the more confidence you will have in your day to day operations in the
market.
If the overall market is not supporting higher prices, very few stocks you own , if
any, will do well. In a football game, two sides operate on the field at any one time,
offense and defense. The same forces act in the marketplace. There are times
when the market is supporting higher prices. When the market is supporting higher
prices, we can say that you have possession of the ball. You have the offensive
team on the field. When you have the ball, your job is to take as much money away
from the market as possible; this is the time you must try to score. During times
when the market is not supporting higher prices, you have in essence lost the ball
and must put the defensive team on the field. During such periods, the job of the
market is to take as much money away from you as possible. Think for a moment
about your favorite football team. How would they do if they operated only with the
offensive team in every game? They might do well when they had possession of
the ball, but when the opposing team had the ball, your team would be scored on at
will. The net result is your season would be lackluster at best.
This is the problem most investors have: They don't know which team is on the
field, much less where the game is being played. The NYSE Bullish Percent clearly
signals when the environment is ripe for offense or defense.
The NYSE BP is simply a compilation of the percent of stocks that trade on the
NYSE on Point and Figure buy signals. If you simply thumbed through all the Point
and Figure chart patterns of the stocks on the NYSE and counted the ones that
were on buy signals, then divided by the total number of stocks evaluated, you
would have the NYSE Bullish Percent reading. DWA calculates all of this in their
database and displays the charts for you, however, it is important to know how they
are calculated.
Let's say for instance, there were 2,000 stocks on the NYSE and 1,000 of them
were on Point and Figure buy signals. The Bullish Percent would be at 50%
(1,000/2,000 = 50 percent). We use the same three-box reversal to shift columns in
this index as we do in the normal Point and Figure chart. Each box constitutes 2
percent, and the vertical axis runs from 0 to 100 percent. It will take a 6% change in
order to reverse this chart.
When the index is rising in a column of X's, more stocks are going on buy signals.
Changes in the index can only come from first signals that are given by a stock,
not subsequent signals. Let's say that XYZ stock bottoms out after declining and
then gives that first buy signal off the bottom. That signal turns the stock from
bearish to bullish. It is this first buy signal that is recorded. All subsequent buy
signals are not counted.
The Bullish Percent concept is unique from most market indicators because it is a
one stock - one vote indicator. The reason this is so important is that most peoples
portfolios are managed on an equal dollar weighted basis, much like a one stock one vote. Therefore, the Bullish Percent index is a better indicator to manage risk
than a capitalization weighted index like the S&P 500. In other words, you are
PnF University
PnF University
Welcome:
Lesson 4:
Part 1. Continued
PnF University
PnF University
market. When the index is declining in a column of O's, we say the market has the
ball and your job is to try to keep it from scoring against you.
If you colored the chart above the 70 percent level red and the area below 30
percent level green, these would represent the two extremes much like the end
zones of a football field.
When you are in the Green Zone, below 30% and in a column of X'syou have a lot
of room to run the ball. When you are in the Red Zone and in a column of O's you
have a lot of territory to lose the ball. It isn't often the index moves below 30% or
above 70%.
Thinking about this concept in terms of supply and demand, when the NYSE
Bullish Percent goes near/below 30% the availability of supply to continue to push
the market lower is severely limited. When the NYSE BP goes near/above the 70%
level, the availability of demand to continue to push the market higher is severely
limited.
Next
PnF University
Welcome:
Lesson 4:
Part 1. Continued
PnF University
PnF University
Bull Confirmed Bull Alert Bull Correction Bear Confirmed Bear Alert Bear Correction.
PnF University
Next
PnF University
Welcome:
Lesson 4:
Part 1. Continued
PnF University
Defense:
Come off margin
Sell partial positions
Tighten up stop loss points.
Sell calls against positions
Take partial positions off the table
Increase cash position
Move to more defensive issues
Buy protective puts
Short positions can be initiated
Next
PnF University
Welcome:
Lesson 4:
PnF University
lines of
demarcation
exist at the 70%
and 30% level.
The risk levels
are defined the
same for the
OTC BP as with
the NYSE BP
and their
meaning is
identical.
Important Note:
You can see here with the above chart that it isn't often the Index reaches below the 30% level except in
extreme market conditions. It is more often that it bases around the higher 30's or lower 40's. This is also
true near the 70% level. Most often the OTC Bullish Percent tops out in the 60's. When learning the risk
levels you must understand, as with all of PnF charts, that this is an art, not a science. Point and Figure is a
combination of charts and so far we have been teaching you the principles of the individual charts and we
will start to move into how to put them all together.
Optionable Bullish Percent
The Optionable Bullish Percent is a shorter to intermediate term indicator comprised of bigger name/cap
stocks in the NYSE and OTC that have options listed against them. There are more than 3000 stocks in this
index.
It works just like the NYSE BP and often changes in the Optionable Bullish Percent will be followed by a
change in the NYSE Bullish Percent. That is to say if the "OPTI" turns negative we watch the NYSE BP
closely to see if it is to turn negative and vice versa. The same six risk levels apply and the overbought level
begins at 70% (Red Zone) and the oversold level begins at 30% (Green Zone).
Next
PnF University
Welcome:
Lesson 4:
Part 2. Continued
PnF University
stock
commitments.
However,
traders can
effectively
use it as a
market timing
indicator for
short term
trades. If the
main trend in
the market is
up as
dictated by
the NYSE BP
and the 10
Week is on a
buy signal,
then you are
in a market
that is bull
configured
both short
and long
term. In the
latter case,
an investor
would be fully
invested. We
will continue
with how to
put this
together with
other indexes
in a later
lesson.
High Low Index
One of the short term indicators, we use this in conjunction with the Percent of 10.
This index is calculated by taking the number of new highs and dividing by the number of new highs plus
new lows. We keep this calculation on a ten day moving average and then plot it on a point and figure
chart.
Buy signals come when the index falls to or below 30% and then reverses up, or a column of X's exceeds
a previous column of X's.
Sell signals come when the index goes above 70% and then reverses down below 70% or a column of
O's exceeds a previous column of O's,
The chart is set
just like a bullish
percent chart
going from 0 to
100%. The two
critical levels are
30 and 70%. Sell
signals come from
reversals above to
below 70%. Buy
and sell signals
can also come by
exceeding a
previous top or
bottom
respectively.
Reversals from
above 70 percent
PnF University
Moved
Below 10%
3-6-80
8-31-81
6-7-82
2-17-84
2-17-84
7-18-84
10-20-87
1-31-90
5-2-90
Dow
Reading
828.07
881.46
804.03
1148.87
1101.24
1111.64
1841.01
2590.54
2689.64
Low
Reading
0.9%
2.0%
5.5%
7.5%
5.3%
5.5%
0.7%
8.9%
9.7%
Dow
Reading
800.94
849.98
795.57
1134.21
1124.35
1096.95
1938.33
2590.54
2689.64
Upside
Reversal
4-10-80
10-7-81
6-24-82
2-28-84
6-11-84
8-2-84
1-4-88
2-7-90
5-7-90
Dow
Reading
791.47
868.72
810.41
1157.14
1115.61
1166.08
2015.25
2640.09
2721.62
PnF University
Aug 1990
Nov 1994
Aug 1998
8-15-90
11-23-94
8-31-98
2748.27
3674.63
7539.07
3.4%
5.4%
4.2%
2613.37
3746.29
7615.54
9-18-90
12-21-94
9-23-98
2571.29
3801.80
8154.41
Next
PnF University
Welcome:
Lesson 4:
Part 2. Continued
PnF University
Buy and Sell Signals for the Dow Jones 20 Bond Average:
PnF University
May 1992:
October 1993:
Buy Signal
Sell Signal
99.2
105.6
Change:
October 1993:
January 1995:
Sell Signal
Buy Signal
105.6
94.6
Change:
January 1995
July 1995:
Buy Signal
Sell Signal
94.6
102.8
Change:
July 1995:
September 1995:
Sell Signal
Buy Signal
102.8
103.0
Change:
September 1995:
March 1996:
Buy Signal
Sell Signal
103.0
103.8
Change:
March 1996:
August 1996:
Sell Signal
Buy Signal
103.8
102.0
Change:
August 1996:
January 1997:
Buy Signal
Sell Signal
102.0
103.0
Change:
January 1997:
June 1997:
Sell Signal
Buy Signal
103.0
102.6
Change:
June 1997:
February 1999
Buy Signal
Sell Signal
102.6
106.0
Change:
February 1999:
February 2000
Sell Signal
Buy Signal
106.0
96.4
Change:
February 2000
March 2000
Buy Signal
Sell Signal
96.4
95.6
Change:
March 2000
June 2000
Sell Signal
Buy Signal
95.6
94.6
Change:
+6.4
+11.0
+8.2
-0.2
+0.8
+1.8
+1.0
+0.4
+3.5
+9.6
-.8.0
+ 1.0
Next
PnF University
Welcome:
Lesson 4:
Wrap Up
In this chapter you have been introduced with all of the main indicators; the NYSE
BP, the Optionable BP, the OTC BP, Percent of 10, High Low Index and the Dow
Jones 20 Bond average. The NYSE BP and OTC BP are our Main Coachs, our
guide to whether we are offensive or defensive in the market. They look ahead and
are the first thing we consider when investing. The short term indicators determine
our trade positioning, whether to cover or initiate new positions.
In a later chapter you will see how all of these work together to determine long term
and short term risk and how to position yourself in these different types of markets.
Lesson 4 Contents:
Part 1: NYSE Bullish Percent
Market Timing
Attributes of a Bullish Percent Chart
NYSE Bullish Percent Risk Levels.
Historical NYSE BP Chart
We will now test you to find your comprehension of the subjects discussed in
Lesson 4.
Next
PnF University
Welcome:
Lesson 4:
Technical Indicators
The Myth About Market Timing.
You have heard for years that market timing can't be done. The market averages a
return of about 12% a year and to try and do better is just a frugal attempt. The buy
and hold strategy is the best for long term investors. There's more to it than just
buy and hold as we will explain and you've probably come to realize on your own.
Best Days vs Worst Days.
Consider the following argument put forward by the Buy and Hold proponents.
If you missed the ten best days in the market from '90-'98, your returns would be
140% versus a buy and hold strategy of 248%. The other half of that story is if you
missed the ten worst days during that same period, your returns were 473%. Since
the best days and the worst days often happen near one another, we looked at
missing the 10 best and 10 worst days. Excluding those days your return was
261%!
Market Timing Does Work.
"In order to be a successful risk management investment strategy, market timing
does not have to be perfect. Despite belief to the contrary, market timing does not
target getting in and out of the market at the absolute bottoms or tops. It does,
however, strive to get an investor's funds out of the market before a major bear
market devastates the portfolio. Market timing's first and foremost priority is the
preservation of capital."
Source: "Lasting Wealth is a Matter of Timing" by Sosnowy
Do You Feel Lucky?
The assumption of the often quoted Buy and Hold studies is that you won't need
your money for 50 years or more. These studies assume you aren't buying a home,
sending children to college or retiring in the next 50 years. A more important
question is...
"Where are you getting on the investment train?"
If you got on the train at the beginning of the 1973-1974 Bear Market, it took 7.6
years to get back to even.
Do you have 7.6 years to spare? Do you not need your money for 7.6 years?
NYSE Bullish Percent:
We use the Bullish Percent indices to assess risk in the market.
http://208.149.108.6/cgi-bin/foxweb.exe/D:\foxap...wuniv?email=neowaver@hotmail.com&lesson=4&page=2 (1 of 3) [4/19/2001 9:19:29 PM]
PnF University
The concept began in the 1940's but it wasn't until 1955 that A.W. Cohen actually
created the NYSE Bullish Percent. We often refer to this indicator as our main
coach for NYSE stocks. It tells us whether to have the offensive or defensive team
on the field. X's mean offense and O's mean defense. This indicator tells you who
has the ball. Based on a University of Chicago study 80% of the risk in any stock is
based in the market and the sector. However, they found that most people spent
80% of their time on stock selection. The NYSE Bullish Percent provides the insight
needed in determining the risk in the market. The more you learn about this
indicator, the more confidence you will have in your day to day operations in the
market.
If the overall market is not supporting higher prices, very few stocks you own , if
any, will do well. In a football game, two sides operate on the field at any one time,
offense and defense. The same forces act in the marketplace. There are times
when the market is supporting higher prices. When the market is supporting higher
prices, we can say that you have possession of the ball. You have the offensive
team on the field. When you have the ball, your job is to take as much money away
from the market as possible; this is the time you must try to score. During times
when the market is not supporting higher prices, you have in essence lost the ball
and must put the defensive team on the field. During such periods, the job of the
market is to take as much money away from you as possible. Think for a moment
about your favorite football team. How would they do if they operated only with the
offensive team in every game? They might do well when they had possession of
the ball, but when the opposing team had the ball, your team would be scored on at
will. The net result is your season would be lackluster at best.
This is the problem most investors have: They don't know which team is on the
field, much less where the game is being played. The NYSE Bullish Percent clearly
signals when the environment is ripe for offense or defense.
The NYSE BP is simply a compilation of the percent of stocks that trade on the
NYSE on Point and Figure buy signals. If you simply thumbed through all the Point
and Figure chart patterns of the stocks on the NYSE and counted the ones that
were on buy signals, then divided by the total number of stocks evaluated, you
would have the NYSE Bullish Percent reading. DWA calculates all of this in their
database and displays the charts for you, however, it is important to know how they
are calculated.
Let's say for instance, there were 2,000 stocks on the NYSE and 1,000 of them
were on Point and Figure buy signals. The Bullish Percent would be at 50%
(1,000/2,000 = 50 percent). We use the same three-box reversal to shift columns in
this index as we do in the normal Point and Figure chart. Each box constitutes 2
percent, and the vertical axis runs from 0 to 100 percent. It will take a 6% change in
order to reverse this chart.
When the index is rising in a column of X's, more stocks are going on buy signals.
Changes in the index can only come from first signals that are given by a stock,
not subsequent signals. Let's say that XYZ stock bottoms out after declining and
then gives that first buy signal off the bottom. That signal turns the stock from
bearish to bullish. It is this first buy signal that is recorded. All subsequent buy
signals are not counted.
The Bullish Percent concept is unique from most market indicators because it is a
one stock - one vote indicator. The reason this is so important is that most peoples
portfolios are managed on an equal dollar weighted basis, much like a one stock one vote. Therefore, the Bullish Percent index is a better indicator to manage risk
than a capitalization weighted index like the S&P 500. In other words, you are
PnF University
PnF University
Welcome:
Lesson 5:
Introduction
Message Board
Lesson 5 Contents:
Part 1: Sector Bullish Percents.
PnF University
FoxWeb
61
4.0,MSIE 5.01
PROSENSTEIN
Important!
If you are sending email, please use Copy/Paste to put this information into your email. If we don't have
this info, we can't find the problem.
Error message: User program "File 'questions.html'" is invalid, non-existent or has not been compiled
Code with error:
Lineno: 0
Program: FoxWeb
User: Pauline Rosenstein
dbf:
recno: 0
What were you doing (be Very specific):
Email addresses to report a...
DWA Support or call (804) 320-8511
Database error
an emergency
DWA Support
(Page Administrator)
PnF University
PnF University
Welcome:
Lesson 5:
PnF University
Individual sectors.
Here are the sectors currently covered at DWA:
This list is pulled from the DWA database.
Forest Prods/Paper
Aerospace Airline
Gaming
Asia Pacific
Healthcare
Autos & Parts
Household Goods
Banks
Insurance
Biomedics/Genetics
Internet
Building
Latin America
Business Products
Leisure
Chemicals
Machinery and Tools
Computers
Metals Non Ferrous
Drugs
Oil
Electronics
Oil Service
Europe
Precious Metals
Finance
Foods Beverages/Soap Protection Safety Eq
Real Estate
Restaurants
Retailing
Savings & Loans
Semiconductors
Software
Steel/Iron
Telephone
Textiles / Apparel
Transports / Non Air Bull Alert
Utilities / Electri
Utilities / Gas
Wall Street
Waste Management
We will not review each sector bullish percent chart one by one, however, it is
important that you take the time to look at them. By evaluating each of these charts
you will learn the nuances of each sector. Again this is the "art" of the methodology.
Some like the internet have wild swings to chart extremes while others like the drug
sector seem to move in a more confined area. Understanding this, knowing where
a sector typically tops or bottoms, helps you to better evaluate the risk in a
http://208.149.108.6/cgi-bin/foxweb.exe/D:\foxap...wuniv?email=neowaver@hotmail.com&lesson=5&page=2 (2 of 3) [4/19/2001 9:22:48 PM]
PnF University
particular sector.
Next
PnF University
Welcome:
Lesson 5:
Part 1 - Continued
PnF University
It is when the Bell curve is skewed to the right that everyone who wants to be in the market is in and there
isn't much opportunity left. This is when things look the best but really it is when caution is warranted.
The charts above show all the sectors in Uppercase letters. DWA created this method to easily show which
sectors are moving up or down, are in X's or O's; Uppercase for those sectors moving up and Lowercase for
sectors moving down (not shown in the Bell curves above).
You can look up the sector Bell Curve if you have the professional subscription at DWA under the "Reports
and Sector Area" link. For the individual investors, DWA posts the Sector Bell curve in the "From the Analyst"
section when there are important changes or updates.
Next
PnF University
Welcome:
Lesson 5:
Part 1 - Continued
Note:
With respect to the Bell
Curve, this sector would
be listed on the left
hand side, below the
30% level and in lower
case (because the
sector chart is in O's).
PnF University
Drug Sector
(BPDRUG)
Notice this sector
typically moves
between the high 30's
and mid 60's. It has in
its history moved below
30%, which proved to
be a great entry. Only in
the years '91 and '92 did
it move above 70% (not
pictured). Therefore, we
consider the "over
bought" area for this
particular sector to be in
the 60's and the low
30's would be
considered the "over
sold" area.
Note:
With respect to the Bell
Curve, this chart would
be in the middle of the
curve, at 50%, and in
Uppercase letters
because the chart is in
X's.
Take time to look at the different sectors to see where they top and bottom out and where opportunity lies. At
this writing, the market has taken a major slide and the Sector Bell Curve has been effected. Most of the
sectors are below the 50% area telling us that the market is now over sold. We look for sectors to reverse up
from these low levels and to find opportunity in stocks that are housed in those sectors. You will see the
Uppercase and Lowercase letters in this example.
PnF University
Next
PnF University
Welcome:
Lesson 5:
Sector Relative Strength is a great tool to use when trying to determine which
sectors are outperforming the market. Given the fact that the Sector is one of the
greatest contributors to price fluctuation in a stock, it is extremely important to
determine its relative strength. Those sectors exhibiting positive relative strength
(ones in a column of X's on their RS chart) are the ones to focus on.
Relative Strength is a term we use extensively and place great importance. Many
of you are very aware of its definition and importance pertaining to stock selection,
but sector relative strength is a vital component when determining which sectors
are likely to perform the best. During times of market uncertainty, Sector RS takes
on a particularly significant role. It is at these times that you should be paying close
attention to those sectors which are exhibiting strong relative strength - that is, are
showing that they are "out performing" the market.
Sector Relative Strength measures how a particular sector is doing compared to
the market in general. The Relative Strength calculation is simply done (using
Tuesday evening closing data that is available automatically through DWA) by
dividing the price of the sector by the price of the S&P 500 (SPX), and then
multiplying by 100.
This number is then plotted on a point and figure chart. As with any PnF chart and
as you have seen in the previous lesson on stock relative strength, buy signals are
given when a column of X's exceeds a previous column of X's. Sell signals are
given when a column of O's exceeds a previous column of O's.
But of equal importance for Sector RS is what the most recent column is on the RS
chart.
When a sector index reverses up into a column of X's on its RS chart, we
consider that a "Buy" signal.
When a reversal up occurs, it is a sign that you should be considering it to initiate
positions. Don't forget that there are other factors to consider such as risk in the
general market and the chart of the individual stock. A reversal down on the sector
RS chart is considered a negative and this would not be a sector to consider
intiating positions in. If long stocks in these sectors it is time to evaluate them and
PnF University
PnF University
Welcome:
Lesson 5:
Part 2 - Continued
The sectors which we follow RS readings for are listed below. You can access this data
on the DWA site by clicking on the "Indices" link in the bottom-left quadrant. Then click
on the "Sector" link at the top of the page and this will bring up the list of sectors and
will show a column that says "RS vs. SPX". On this same page will be a list of our DWA
Equal Weighted Sector Index Relative Strength readings. We developed these DWA
indexes, (and RS charts for them), to give you a broader view of how a sector is
performing on a relative strength basis. The RS charts for the cap-weighted SOX and
the DWA Semiconductor index will more often than not tell the same story, but these
DWA Sector RS charts will be especially helpful for those sectors which don't have an
exchanged based sector index, such as the Media group, or Restaurant sector.
Again when using these RS charts, you want to focus your buying (or owning of stocks)
in those sectors which are in a column of X's on their RS chart - they are the ones
which are outperforming the market. This tool is extremely important to use when the
sector bullish percent may be close to a reversal down. It will help keep you in at least
partial positions of stocks that reside in strong RS sectors, rather than dumping the
whole position out if the sector bullish percent reverses down into O's.
Let's use Intel (INTC) as an example. The Semiconductor bullish percent reversed
down from high levels, but the relative strength for the sector has not waned at all. On
all measurements, the RS for the Semiconductor group remains very strong. So if you
owned INTC, instead of selling out the entire position, you would have been better off
to only trim the position, keeping some exposure in the group due to the strong RS
reading of the sector. Again, remember the concept is to outperform, and we think the
best measurement for this is RS.
Now let's go over some of the other tools that are at your disposal that can help you try
to get a handle on sector relative strength. There are two other forms of charts we keep
that can give you insight into sector relative strength, or the underlying strength of the
stocks which make up a given sector.
PnF University
We have developed a
chart that will show you
the percent of stocks in
a given sector, or for
that matter given market
class - NYSE,
Optionable Universe or
OTC, which are in a
column of X's on their
RS charts. We plot this
percent like we do our
other bullish percents,
from 0% to 100% using
a 6% reversal to change
columns. To the right we
show you one of these
charts on the OTC
market. This chart
shows you the percent
of OTC stocks which are
in a column of X's on
their RS charts. You can
see the weakness in
March and April wit the
percent od stocks in this
universe falling from
52% to a low of 28%.
58
56
54
52
50
48
46
44
42
40
38
36
34
32
30
28
26
24
22
20
18
16
48
46
44
42
40
38
36
34
32
30
28
26
24
22
20
18
16
| |
|
| |
|
| |
|
| |
3
------------+-+---X O--X | |
X O
X O |
2 O
A O |
1 O
X C |
X O
------------O +---C O--5 |
B 4 7
6 |
A O X
8 X
9 O 6
O 1 O 7 O X
------------9 C O X O-XO X 4 X O
A X O |
O |
|
| |
|
------------+-+---+-------| |
|
| |
|
| |
| |
| |
B |
----------X O -----A O
X 5
| 6
| 7 X
----------+-8 6----| 9 5
| O 3
| A X
| 3 X
----------+-4----| |
| |
PnF University
14
12
| |
| |
60
58
56
54
52
50
48
46
44
42
40
38
36
34
32
30
28
26
24
22
20
18
16
------------+----|
| 1
| X
A | C
----------X O X ---9 O B
X C X
X O A
X O X
----------8 O 9 ----X 1 7
O X
3 X
O 6
------------O 2 ----6 1
O X
O C
O X
------------7 X ----9 |
| |
PnF University
Symbol Index
AUX
BIX
BKX
BMX
BTK
CEX
CWX
DOT
DRG
DUX
FPP
GAX
GOX
HCX
HMO
HUI
HWI
IIX
INX
IUX
MSH
NWX
OIX
OSX
PSE
RLX
RMS
RXH
SOX
TRAN
TRX
2)
Symbol
Sector Index
PnF University
TXX
UTIL
UTY
XAL
XAU
XBD
XCI
XNG
XOI
XTC
DWARETA
DWASAVI
DWASEMI
DWASOFT
DWASTEE
DWATELE
DWATEXT
DWATRAN
DWAWALL
DWAWAST
Next
PnF University
Welcome:
Lesson 5:
Wrap Up
Sector rotation is a very important aspect to investing because it unveils opportunity in the
market which is usually unrecognized until it is too late. Often the media "hypes" a particular
sector when it is already over bought and at its peak. PnF allows you to recognize
opportunity when it is the hardest to spot.
Part 1: Sector Bullish Percents.
Perfect Market Timing vs Perfect Sector Timing
DWA Individual Sectors.
Sector Bell Curves
Examples
We will now test you to find your comprehension of the subjects discussed in Lesson 5.
Next
PnF University
1:
30
28
26
24
22
20
18
16
O
O
O
O X
O X
O X
O
2:
3:
4:
5:
78
76
74
72
70
68
66
64
62
60
50
48
44
42
40
39
38
37
36
35
34
58
56
54
52
50
48
46
44
42
40
38
36
34
32
30
60
58
56
54
52
50
48
46
44
42
X
X
X
X
X
X
X
O
O
O
O
X
X
X
X O X
X O X
X O
X
X
X
X
X
X O
X O X O
X O X O
X O
O
X
O
X
O
X
O
X
O X
X
O X
X
O X
X
O
X
6:
X
X
X
X
X
X
X
X
O
O X
O X O
O X O
O
O
O
70
68
66
64
62
60
58
56
54
52
50
X
X O
X O
X O
X
X
X
X O X
X O X
X O X
X O
2) Here is a chart of the Aerospace Airlines sector. At this point what would you do with the stocks in your
portfolio that belong to this sector?
80
78
76
74
72
70
68
66
64
62
60
58
56
54
52
50
48
46
44
42
40
38
36
34
32
X
X
X
3
X
X
X
X
X
X
2
X
X
----------+-------------+---------O
|
|
O
|
|
4
|
X
|
X
5
|
9 O
|
4 O
O X ------+-------X O --+-----X O
O X O
|
X A
|
X O
O X O
|
7 O
|
X
O X 6
|
X O
|
3
O
O
|
X O X |
X
----7 ----+-------X O X O ----X
O
X
X O X O
X
O X
B O X
6 O X O
X
O 9 O X O 3 O X O C O X
X
O X O X 1 X O 5 B X O 1 O X
------O X A +-O X 4 X O X O X O 2
O X
| O
O X O
O X O X
O X
|
O
O
O X
O X
|
|
O
O 8
|
|
------O X --+-------------+------O X
|
|
O
|
|
|
|
|
|
Buy as many good fundamental stocks as you can.
PnF University
Boycott the airline industry and vow to take trains and boats for the rest of your life.
Evaluate your stocks for weak issues that may be in trouble and either sell or hedge them.
Wait for a reversal up to buy more stock.
3) Same sector. What would you do with stocks in this sector here?
80 --------------+-------------+-----------78
|
|
76
|
|
74
X
|
|
72
4 O
|
|
70 ----X O ------+-------------+-----------68
X O
|
|
66
X O
|
|
64
3 5
|
X
|
62
X O
| X
X O
|
60 ----X O ------+-X O 5 O ----+-----------58
X O
C | X O X O
|
56
X O
X O X 2 X O
|
X
54 X
X 6
X O X O X O X
|
X O
52 1 O X O
X O X O X 6 X O |
X O
50 X O 2 O ----X O X O X O X O +---X 4 ----48 X O X O
X O 1 O X O
O |
X O
46
O X O
X O X 3 4
O X
X O
44
O
7
B O X O X
8 1 O X O
42
O
X O
O X
O X O X O
40 -------O ----X +---O ------O X O 3 O ----38
O
X |
9 C 2 X O
36
8
X |
O X O X O
34
O
X |
O X O
32
O
X |
O B
30 -------O ----X +-----------O X ----------28
O
X |
O X
26
O
X |
O |
24
O X
X |
|
22
O X O X |
|
20 -------O X O X +-------------+-----------18
O X A X |
|
16
9 X O
|
|
Liquidate all issues because a sell signal is coming up.
Wait for the sector to move below 30% to find the really good deals.
Still vowing never to fly again.
Consider buying strong stocks in this sector.
4) Answer the following questions with regard to this Bell Curve:
wast
TRAN
TEXT
reta
REAL
mach
wall
stee prot
semi meta
tele
SAVI heal
inet
prec EUTI
comp
SOFT drug
biom
medi BANK
0-14% 16-20% 22-26%
leis
lati
fina
busi
BUIL
elec
auto
28-32%
oils
rest
asia
aero
34-36%
hous
insu
fore
38-42%
GUTI
FOOD
GAME
euro
CHEM
oil
44-46% 48-52% 54-56% 58-62% ...
PnF University
- Select One -
- Select One -
)(
- Select One -
) = Sector RS Reading
Score Test
Submit
PnF University
PnF University
PnF University
Lesson 6 Introduction
Here we put it all together. Everything you have learned in the previous 5 chapters
will come together here. We will show you how to combine different aspects of the
market to assess risk for trades or long term investing. Rules of investing and trading
examples. You will see how important it is to understand each individual concept
combined with the larger picture to make informed decisions towards your
investments.
Test yourself at the end of the chapter to sharpen your skills.
As with any chapter, if you have any questions, click on the questions button (?) and
it will be answered shortly (within 48 hours). You can also look at the link for
questions above and see if the same question has already been answered.
Message Board
Go To: Lesson 6, Part 1
PnF University
PnF University
PnF University
PnF University
+ + +
|
+
+
|
+
+
|
+
+
|
+
+
|
+
+
|
+
+
|
+
+
|
+
-------------------|------------------100% Oversold
Normal 100% Overbought
6: Gaps Down. News items or earnings reports come out that cause a stock to drop
sharply. Often times it will get an initial bounce back up. Watch to see if stock has
pulled back to an area of good support. This situation often provides quick trade. You
can use the 18 O's down link to find potential ideas.
+
7: Risk-Reward: Has the stock pulled back? Identify the stop point, what the Price
Objective is, where the resistance lies, and if the stock is close to support. You want
to know what the risk is if the trade does not work out. You must be able to handle
the worst case scenario.
Go To: Lesson 6, Part 2
PnF University
PnF University
Lesson 6 Wrap Up
This university has been a good starting point to learn about the Point and
Figure Methodology. However, be sure to get a copy of Tom's book on Point
and Figure charting. It is the most complete resource on the topic. Over these six
lessons we have covered the PnF methodology in detail, from the basics of how
to chart to the details of how our market indicators are created and followed.
Lesson six provided details of how you can take what you have learned and
create a playbook for suscessful investing. It is important to note that this
methodology is not a science but an art. To be good at this methodology
requires pratice, and a lot of it. Only by constantly evaluating charts will you
refine your skills and become a true craftsman. As we like to say, once you find
religion you have to attend church.
The link in the lower right will take you to a case study. In the study you will be
given indicator data as well as charts on stocks. You will be given $200,000 of
pretend money to make investment decisions. The charts and data are real
although the names have been changed. at the end we will tell you when and
who you were investing in. Be sure to read the directions and have fun!
Go to: Case Study
PnF University
Lesson 6 Wrap Up
This university has been a good starting point to learn about the Point and
Figure Methodology. However, be sure to get a copy of Tom's book on Point
and Figure charting. It is the most complete resource on the topic. Over these six
lessons we have covered the PnF methodology in detail, from the basics of how
to chart to the details of how our market indicators are created and followed.
Lesson six provided details of how you can take what you have learned and
create a playbook for suscessful investing. It is important to note that this
methodology is not a science but an art. To be good at this methodology
requires pratice, and a lot of it. Only by constantly evaluating charts will you
refine your skills and become a true craftsman. As we like to say, once you find
religion you have to attend church.
The link in the lower right will take you to a case study. In the study you will be
given indicator data as well as charts on stocks. You will be given $200,000 of
pretend money to make investment decisions. The charts and data are real
although the names have been changed. at the end we will tell you when and
who you were investing in. Be sure to read the directions and have fun!
Go to: Case Study
PnF University
Lesson 6 Wrap Up
This university has been a good starting point to learn about the Point and
Figure Methodology. However, be sure to get a copy of Tom's book on Point
and Figure charting. It is the most complete resource on the topic. Over these six
lessons we have covered the PnF methodology in detail, from the basics of how
to chart to the details of how our market indicators are created and followed.
Lesson six provided details of how you can take what you have learned and
create a playbook for suscessful investing. It is important to note that this
methodology is not a science but an art. To be good at this methodology
requires pratice, and a lot of it. Only by constantly evaluating charts will you
refine your skills and become a true craftsman. As we like to say, once you find
religion you have to attend church.
The link in the lower right will take you to a case study. In the study you will be
given indicator data as well as charts on stocks. You will be given $200,000 of
pretend money to make investment decisions. The charts and data are real
although the names have been changed. at the end we will tell you when and
who you were investing in. Be sure to read the directions and have fun!
Go to: Case Study
PnF University
PnF University
Recommended Materials:
It is highly advisable to have in your
possession a copy of Tom Dorsey's
book "Point and Figure Charting" while
taking these classes. His book has
many additional examples and
explanations available. You may order
his book through the DWA Store,
Traders Library, Amazon.com, Buy.com
or your local book store.
Also, some graph paper is useful for
charting practice.
DWA has a two week free trial offer that
you may use while taking these classes
and this will give you access to all the
materials discussed in the lessons. Click
here for subscription
information--Subscription Services
University Updates:
Some parts of this University are still
being developed. We will update
here any new features available and
any upgrades that have been added.
PnF University
At the end of each lesson there is a brief test covering the materials
in that particular lesson. The database will process your answers
determining any weak areas to be reviewed again.
Glossary:
Anecdotes: This section will grow with time as Tom Dorsey and other DWA
analysts describe their experiences and personal lessons learned
during their investment careers.
History:
Exercises:
Questions: Previous questions will be posted here and you may find an answer
to any questions you have in this section.
Help School
Marm:
FAQ:
Technical
Help:
When you enter your User Name, it must be Exactly like you will enter it to access the data. Your
password will be emailed to you so check your email address!
All information is used for internal purposes and is not released to any third party.
Individual or
Registered Professional
Desired
Logon Name
Real First Name
Real Last Name
Email
Be Sure!
Company
Address 1
Address 2
City
State/Province
(Do not select if
not U.S.)
Select a State
Zip/Postal Code
Country
United States
Phone
Fax
Where did
you hear about
DWA
TV
P&F Book
Radio
Net Search
Friend/Broker Jagnotes
Trader's Expo Other
(fill in below)