Ask Colin

As a share increases in price, how do you decide when to change the box size on a point and figure chart?

Point and Figure charting is more of an art than a science. I don't think there is any way of getting around this. Different shares and different markets trade with different characters, so there is always some fine-tuning to do.

What I do is to look at more than one box size for the charts, in much the same way you might look at different magnifications or different levels of resolutions in looking at a photograph. In fact this is a useful analogy, because all any chart does is give you a picture of trading activity. You can study this in fine detail, or you can study it from a larger perspective.

The same thing is done in bar charts where we look at one minute, five minute, hourly, daily, weekly or monthly charts. These divisions of time are also quite arbitrary and some analysts deliberately look at other time periods. Indeed these time periods used for bar charting are a much more arbitrary method than that used for Point and Figure charts based on true course of sales data in that the chart is not filtered in any way by time, only price action.

Some time ago I wrote an article on determining the box size on point and figure charts. I am putting this up on the web site under Resources, Technical analysis. As a share rises significantly in price or falls significantly in price, I alter the box size so that it is relevant to the current price levels.