Ask Colin

Why are you not using point and figure charts much any more?

I first learned to use point and figure charts back in the late 1960s. They had the particular advantage that it was possible to maintain a library of charts of up to several hundred stocks by hand in reasonable time. Bar charts take so long to draw, it would have needed a team of people drawing charts to achieve the same result.

Over time, I became very familiar with the technique and when computers came along, I was very apprehensive about changing away from them in case I lost my feel, developed over many years of experience. So, I ran both computer-generated and hand drawn point and figure charts in parallel for quite some time. Eventually, I felt that I had not lost the feel with the computer drawn charts (end of day data) versus the hand drawn charts (course of sales), so I \d\r\o\pped the hand drawn charts. I see this as part of the natural progression we go through in all walks of life as new technology replaces the old and makes new things possible.

I then also had the ability to use the computer to drawn line, bar, candle, swing and equivolume charts easily and began to gain experience with them. However, my principal method was still point and figure charts. Every time I made any judgement about a point and figure chart, I swung to the bar and candle charts to see if the same things were equally evident there. It soon became apparent that they often were and that also they sometimes clarified the picture.

About the time I started giving seminars, I was using both bar and point and figure charts equally. Many people expressed the view that I should teach in the seminars exactly what I did myself. So, as my primary method had been point and figure for so long and that was well known, I taught my methods using point and figure charts. When it became possible to videotape the one-day version of the seminar in New York in 2000, that was the point I was at.

However, shortly after that time, I found that I had progressively been using bar charts more and more. Also, it took about two hours in the full two-day seminar just to introduce people to point and figure charts. Yet they still struggled with them. So I took the decision to teach my methods using bar charts and use the time saved by not teaching point and figure charting to have more interaction in the seminar, which worked rather well.

Those who took the full two-day version of the seminar will know that I always stressed that my methods were not dependent on the chart form and I encouraged those who did not have a facility to draw point and figure charts properly (eg MetaStock users), or who did not want to bother with them, to just use bar charts.

So, when we came to videotape the full two-day version of the seminar at the Traders Camp in October 2001, I taught it using bar charts.

As in all of life, I reserve the right to change, modify and improve the methods I use as I find better ways to do things. Of course, there are plusses and minuses in all of this. It is never a black-and-white choice between two alternatives. You gain with some aspects and lose with others.

One of the trade-offs is in the area of breakouts. I still feel that the filtering involved in point and figure charts tends to clarify breakouts. However, that said, I am also strongly of the opinion that most people pay far too much attention to stock selection and fine tuning entry. They are way down the list in terms of what really generates profits from trading and especially investing. Point and figure breakouts might be clearer than on bar charts, but that does not make them one jot more reliable. As far as breakouts on bar charts are concerned, if in doubt, wait till the doubt is resolved. Remember that they are the same breakout as is "clearer" on a point and figure chart. I suspect that the point and figure charts may sometimes have given us a false sense of security, mistaking clarity of breakout for reliability of signal. The key thing is whether a trend develops from the breakout. I only ever put part of my position on with the breakout and build it as the trend develops and is confirmed. If I am a bit later on the breakout because the bar chart is less "clear", that may actually be a good thing sometimes.