Point & Figure

Renko charts are brilliant at deleting time, but they have a flaw: they print a new brick instantly every time the price moves down, even if it is just a tiny dip in a massive uptrend.

If you are riding a multi-year bull run, you do not want to be spooked out of your position just because the price temporarily dipped one brick. You only want to see a reversal signal if the dip is significant.

How do we build a chart that ignores small pullbacks entirely, and only warns us when a real reversal is underway?

Long before computers, Western traders tracked prices on graph paper using Xs and Os. This is Point & Figure (P&F) charting.

The goal of P&F is to separate continuation from reversal — and the asymmetry is between those two, not between up and down. While a column is rising (Xs), it extends on every fresh high but ignores small pullbacks until they reach the reversal threshold. While a column is falling (Os), it does the exact mirror: it extends on every fresh low and ignores small bounces until they hit the threshold. The filter is symmetric — it favours whichever direction the current column is already going, up or down. P&F has no bullish bias; it simply refuses to switch direction until the counter-move is big enough to matter.

A P&F chart uses two variables:

1. The Box Size: How much price must move to draw a new mark (e.g., ₹2).
2. The Reversal Amount: How many boxes the price must reverse before we admit the trend has changed (usually set to 3).

• X column: Shows rising prices.
• O column: Shows falling prices.

If you are in an X column (going up), every ₹2 move up gets a new X stacked on top. But if the price drops ₹2... nothing happens. It drops ₹4... still nothing. The chart literally ignores the drop. Only when the price drops by a full 3 boxes (₹6) does the chart finally declare a reversal, move one column to the right, and print three Os.

Every price in this module is an illustrative example, not a real quote. [illustrative]

Below is a fixed example: the same price series drawn as P&F with a ₹2 box and a 3-box reversal. X columns are rising boxes, O columns falling — and small counter-moves simply never appear.

P&F charts excel at defining clear support and resistance because they condense months of price action into tight columns.

1. The unbreakable floor: You might look at a daily candlestick chart of a bank and see a messy tangle of wicks over the last year. But switch to a P&F chart, and you see five distinct columns of Os that all stopped at the exact same box. That is a pure, mathematically verified support level.
2. The false breakdown: A stock drops sharply on bad news, but not enough to trigger a 3-box reversal. Retail traders panic sell, but the P&F chart doesn't even flinch. It stays in the X column, keeping you in the trade.

Because P&F ignores time, it creates bizarre visual gaps. A single column of Xs could represent three days of frantic buying, or it could represent two years of slow, grinding gains.

It also destroys nuance. A stock that crashes 90% of the way to a reversal threshold, and then shoots to new highs, will just look like an unbroken column of Xs. You will have no idea that the buyers almost lost control.

The most common trap is misinterpreting the current price.

Because P&F ignores small pullbacks, the last drawn 'X' on your screen might be at ₹106, but the actual live price of the stock could be trading all the way down at ₹101. The chart won't show you the drop until it hits ₹100 (the 3-box reversal). If you use a P&F chart to manage tight stop-losses, you will get destroyed by this delay.

The deeper trap is trusting the filter itself. The same box-and-reversal rule that removes noise can also remove a real early warning.

Before you trust an unbroken column, ask: what would change your mind? If the live price is sitting far below the last plotted box and volume is climbing on the way down, the "still in an X column" read is worth doubting, whatever the chart prints.

Point & Figure is the ultimate noise filter, relying on arbitrary box sizes to determine what matters. But what if we didn't want to use arbitrary boxes? What if we wanted a chart that defined a reversal not by a set number of rupees, but by whether the price broke the previous swing low?

That brings us back to Japan, and the Kagi chart.