Section 4 - Chapter 4 - Point-and-Figure Patterns and Analysis - Part I

Chapter 4 – Point & Figure Patterns and
Analysis - Part I
Section 4 – Chart Pattern Analysis
Presented By :
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Agenda
Identify complex point-and-figure chart
patterns
Calculate price projections using vertical
and horizontal counts
Summarize additional uses for point-
and-figure charts

Basics of Point & Figure Patterns
Presented By :

Point & Figure (P&F) Charts
1. Overview
• A Point & Figure (P&F) chart is a price action-based charting technique that filters out insignificant
price movements (noise) and focuses on trends.
• Unlike candlestick or bar charts, P&F ignores time and only reacts to price changes.
2. Construction of P&F Charts
✅ X Columns (Rising Prices) → Represent upward price movements (bullish).
✅ O Columns (Falling Prices) → Represent downward price movements (bearish).
✅ Box Size → The minimum price change required to add a new X or O.
✅ Reversal Size → The price move required to shift from an X column to an O column (or vice versa).
Common values: 1-box, 3-box, or 5-box reversal.

3. Basic P&F Rules
• A new X is added when price moves up by at least 1 box size.
• A new O is added when price moves down by at least 1 box size.
• A reversal occurs only when price moves opposite by at least the reversal size.
• No new entries are made unless price moves significantly in either direction.
4. Trend Identification
Bullish Signal → When a column of Xs exceeds the previous high.
Bearish Signal → When a column of Os falls below the previous low.

5. Common P&F Chart Settings
• Traditional Box Size: 1% of stock price or fixed amounts (e.g., $1 per box).
• ATR-Based Box Size: Uses Average True Range (ATR) for dynamic sizing.
• Reversal Sizes:
o 1-box reversal: No filtering, very noisy.
o 3-box reversal: Most common, filters out minor price movements.
o 5-box reversal: For long-term trends, removes more noise.
6. Support & Resistance in P&F Charts
• Horizontal clusters of Xs or Os act as strong support/resistance zones.
• Breakouts above/below these zones confirm strong trends.

7. Common P&F Patterns
🔹 Double Top Breakout → A bullish signal where a new X column surpasses the previous
X high.
🔹 Double Bottom Breakdown → A bearish signal where a new O column drops below
the previous O low.
🔹 Triple Top & Bottom → Stronger versions of the above.
🔹 Bullish/Bearish Catapult → A consolidation pattern followed by a breakout.
🔹 Bullish/Bearish Triangle → Indicates potential breakout in either direction.

8. Advantages of P&F Charts
 Removes noise → Focuses only on significant price moves.
 Easy to spot trends → No time-based distractions.
 Strong support/resistance levels → Clearly defined breakouts.
 Good for long-term investors & traders → Filters out small fluctuations.
9. Limitations of P&F Charts
 Not useful for short-term trading due to lack of time element.
 May lag during rapid market movements since reversals require significant price change.
 Different settings can give different results (box size & reversal size impact signals).

10. Best Uses of P&F Charts
📌 Trend Trading: Identifying long-term bullish or bearish trends.
📌 Breakout Confirmation: Verifying strong breakouts and avoiding fake outs.
📌 Support/Resistance Analysis: Clearly defines price levels.
📌 Position Sizing & Risk Management: Helps set stop-loss levels.
Quick P&F Settings Guide
Asset Type Box Size Reversal Size
Stocks (Daily) 1% of price or $1 3-box reversal
Forex 20-50 pips 3-box reversal
Cryptos 2-5% of price 3-box reversal
Commodities ATR-based or fixed 3-box or 5-box reversal

Triangle Chart Patterns in
Point & Figure (P&F) Trading
Presented By :

Triangle Chart Patterns
Key Takeaways
• Triangle patterns indicate price compression and potential breakouts.
• They can form as ascending, descending, or symmetrical triangles.
• Breakouts provide strong directional signals but require confirmation.
• A failed breakout can lead to a reversal or trap traders.

Pattern Interpretation Trading Strategy
Ascending Triangle
Higher lows with resistance at
a fixed level; bullish breakout
likely.
Buy after breakout above
resistance with volume
confirmation.
Descending Triangle
Lower highs with support at a
fixed level; bearish breakout
likely.
Sell after breakdown below
support with confirmation.
Symmetrical Triangle
Converging highs and lows;
breakout can go in either
direction.
Trade in the breakout
direction, setting stop-loss
inside the pattern.
False Breakout
Price briefly breaks out but
reverses inside the pattern.
Avoid early entries; wait for
confirmation.

Triangle Trading Strategies
1. Ascending Triangle Breakout Strategy (Bullish Bias)
📌 Setup:
• Identify an ascending triangle with rising lows and resistance at a horizontal level.
• Confirm with at least 3 Xs above resistance for breakout.
• Volume increase strengthens confirmation.
🎯 Entry:
• Buy when price breaks above resistance.
• Conservative traders can wait for a pullback to the breakout level.
🛑 Stop-Loss:
• Below the most recent low in the pattern.
💰 Profit Target:
• Measure the height of the triangle and add it to the breakout point.

2. Descending Triangle Breakdown Strategy (Bearish Bias)
📌 Setup:
• Identify a descending triangle with lower highs and support at a fixed level.
• Confirm with at least 3 Os below support for breakdown.
🎯 Entry:
• Sell when price breaks below support.
• Conservative traders can wait for a pullback to the breakdown level.
🛑 Stop-Loss:
• Above the most recent high in the pattern.
💰 Profit Target:
• Measure the height of the triangle and subtract it from the breakdown point.

3. Symmetrical Triangle Breakout Strategy (Neutral Bias)
Setup:
• Identify a symmetrical triangle with converging highs and lows.
• Breakout direction is uncertain, so wait for confirmation.
Entry:
• Buy if price breaks above the upper boundary.
• Sell if price breaks below the lower boundary.
Stop-Loss:
• Inside the pattern (midpoint of the triangle).
Profit Target:
• Equal to the widest part of the triangle, projected in the breakout direction.

Conclusion
• Triangle patterns are key consolidation setups that indicate price
compression before a breakout.
• Breakout direction is crucial—waiting for confirmation prevents
false signals.
• Symmetrical triangles are more unpredictable, while
ascending/descending triangles have directional biases.
Significance
• Helps traders anticipate big moves before they happen.
• Used by institutions and professional traders to time breakouts.
• Effective in trend continuation or reversal setups.

Shakeout Chart Pattern in
Presented By :

Shakeout Chart Pattern
Key Takeaways
✅ Shakeout patterns signal market manipulation—weak traders
exit, while strong hands accumulate positions.
✅ Often occurs near support levels before a bullish reversal.
✅ A shakeout can also be a trap for impatient traders.
✅ Confirmation is crucial before entering a trade.

Shakeout Chart Pattern
Classic Shakeout
Sharp decline below support,
followed by reversal.
Buy after price regains
support with confirmation.
Shakeout with Reversal
Price drops, then forms a
strong X column (bullish).
Enter long when breakout
happens above the previous
high.
False Breakdown Shakeout
Price fakes a breakdown but
quickly moves back up.
Avoid panic selling; enter
when resistance turns into
support.
Volume-Backed Shakeout
A sharp drop occurs with high
volume but reverses quickly.
Look for a strong recovery
candle before entering.

Shakeout Trading Strategies
1. Classic Shakeout Reversal Strategy
📌 Setup:
• Identify a sharp decline in a column of Os that briefly breaks support.
• Wait for a column of Xs to form and move above the prior resistance.
🎯 Entry:
• Enter long after the price regains the broken support level with at least 3 Xs.
🛑 Stop-Loss:
• Below the lowest point of the shakeout column.
💰 Profit Target:
• Measure the height of the shakeout and project it upwards.

2. Shakeout Trap Pattern Strategy
📌 Setup:
• A sudden drop in price triggers stop-losses of retail traders.
• Institutions enter aggressively, causing a V-shaped recovery.
🎯 Entry:
• Buy once price crosses back above the previous resistance level.
🛑 Stop-Loss:
• Slightly below the shakeout low.
💰 Profit Target:
• Ride the trend until a new resistance level forms.

Conclusion
• Shakeouts are designed to shake out weak hands before a big move.
• Smart traders use them as a buying opportunity rather than a panic
signal.
• Patience is key—wait for confirmation before entering.
Significance
✅ Helps traders avoid stop-loss hunting by institutions.
✅ Provides high-probability reversal trades.
✅ Confirms strong demand zones where buyers step in.

Trend line Breakout in
Presented By :

Trend line Breakout
Key Takeaways
✅ Trendline breakouts signal a shift in market direction—either a bullish or
bearish breakout.
✅ The breakout must be confirmed by price action (at least 3 Xs or Os
beyond the trendline).
✅ Trendlines in P&F charts are diagonal and provide clear support and
resistance levels.
✅ Works well for both continuation and reversal trades.

Trend line Breakout

Trend line Breakout
Bullish Trendline Breakout
Price breaks above a long-
term downtrend line.
Buy once breakout is
confirmed with 3 Xs.
Bearish Trendline Breakdown
Price falls below an upward
trendline.
Sell after breakdown
confirmation with 3 Os.
Retest of Broken Trendline
Price pulls back to the
trendline before continuing.
Enter on the successful retest
for stronger confirmation.
False Breakout
Price breaks out but reverses
back inside.
Avoid early entries; wait for
confirmation.

Trendline Breakout Trading Strategies
1. Bullish Trendline Breakout Strategy
Setup:
• Identify a downward trendline connecting multiple lower highs.
• Watch for a break above the trendline with at least 3 Xs.
Entry:
• Buy once the breakout is confirmed with follow-through price action.
• A conservative approach is to wait for a pullback to the trendline.
Stop-Loss:
• Below the last O column before the breakout.
Profit Target:
• Measure the height of the prior consolidation and project upwards.

2. Bearish Trendline Breakdown Strategy
Setup:
• Identify an upward trendline connecting multiple higher lows.
• Watch for a break below the trendline with at least 3 Os.
Entry:
•Sell once price breaks below the trendline with confirmation.
Stop-Loss:
• Above the last X column before the breakdown.
Profit Target:
• Measure the previous price range and project downward.

Conclusion
• Trendline breakouts in P&F charts provide objective, rule-
based entry points.
• Waiting for confirmation reduces false breakouts.
• Trendline retests often provide secondary entry opportunities.
Significance
✅ Helps identify early trend reversals and continuations.
✅ Effective in momentum trading and breakout strategies.
✅ Removes market noise by focusing purely on price action.

Signal Reverse Patterns in
Presented By :

Signal Reverse Patterns in Point & Figure (P&F) Trading

Key Takeaways
✅ Signal Reverse Patterns indicate a sudden change in market
direction.
✅ They often appear after a strong trend, signaling a possible
reversal.
✅ These patterns trap traders who expect continuation but get
caught on the wrong side.
✅ Confirmation with at least 3 Xs (bullish reversal) or 3 Os (bearish
reversal) is crucial.

Bullish Signal
Reverse
A sharp reversal from a
downward column of Os to
Xs.
Buy once price moves 3
Xs above the last O
column.
Bearish Signal
Reverse
A sharp reversal from an
upward column of Xs to Os.
Sell once price moves 3
Os below the last X
column.
False Signal Reverse
A temporary reversal that
quickly corrects back.
Avoid premature entries;
wait for confirmation.
Double Signal
Reverse
Two consecutive reversals
within a short period.
Expect choppy price
action; avoid trading.

Signal Reverse Pattern Trading Strategies
1. Bullish Signal Reverse Strategy
Setup:
• Identify a column of Os making new lows.
• Watch for a strong reversal column of Xs, moving at least 3 boxes
higher.
Entry:
• Buy once price confirms above the last O column high.
• A conservative approach is to wait for a retest of the breakout level.
Stop-Loss:
• Below the lowest O in the reversal column.
Profit Target:
• Measure the height of the reversal column and project it upwards.

2. Bearish Signal Reverse Strategy
Setup:
• Identify a column of Xs making new highs.
• Watch for a sharp reversal column of Os, dropping at least 3 boxes
lower.
Entry:
• Sell once price confirms below the last X column low.
Stop-Loss:
• Above the highest X in the reversal column.
Profit Target:
• Measure the reversal column height and project downward.

Conclusion
• Signal Reverse Patterns warn of potential trend shifts.
• Waiting for confirmation helps avoid false signals.
• These patterns often trap traders expecting trend continuation.
Significance
✅ Helps traders identify trend exhaustion early.
✅ Prevents getting caught in false breakouts or trend reversals.
✅ Effective for both breakout and trend-following strategies.

Trap Pattern in Point & Figure (P&F) Trading
Presented By :

Key Takeaways
✅ Trap patterns occur when price breaks out in one direction but quickly
reverses, trapping traders on the wrong side.
✅ Often triggered by false breakouts or breakdowns, creating liquidity for larger
players.
✅ Confirmation is crucial—waiting before entering prevents getting caught in the
trap.
✅ Occurs at key support/resistance levels, trendlines, or after strong moves.

Bullish Trap (Bear Trap)
Price breaks below support
but quickly reverses up.
Buy once price moves back
above the support level.
Bearish Trap (Bull Trap)
Price breaks above
resistance but quickly
reverses down.
Sell once price falls back
below the resistance level.
False Breakout Trap
Price breaks out, attracts
traders, then reverses.
Avoid early entries; confirm
with volume or second
breakout.
Stop-Loss Hunting Trap
Sudden spike to trigger stop-
losses before reversing.
Set wider stop-losses beyond
major levels.

Trap Pattern Trading Strategies
1. Bullish Trap (Bear Trap) Strategy
Setup:
• Price drops below key support, forming a column of Os.
• Traders short the market expecting further decline.
• A strong reversal in Xs forms as buyers step in.
Entry:
• Buy when price moves back above the broken support level with 3 Xs.
Stop-Loss:
• Below the lowest O in the shakeout.
Profit Target:
• Measure the height of the reversal and project it upwards.

2. Bearish Trap (Bull Trap) Strategy
Setup:
• Price breaks above resistance, forming a column of Xs.
• Traders buy expecting continuation, but price reverses sharply into Os.
Entry:
• Sell when price moves back below the broken resistance level with 3 Os.
Stop-Loss:
• Above the highest X in the trap formation.
Profit Target:
• Measure the reversal column height and project downward.

Conclusion
• Trap patterns are designed to mislead traders into taking wrong positions.
• Institutional players use traps to absorb liquidity.
• Waiting for confirmation before entering helps traders avoid being trapped.
Significance
✅ Prevents traders from falling into market manipulation.
✅ Provides high-probability reversal setups.
✅ Helps traders understand false breakouts and market psychology.

Long Tail Down Pattern in Point & Figure (P&F)
Trading
Presented By :

Long Tail Down Pattern in Point & Figure (P&F) Trading
Key Takeaways
✅ A Long Tail Down pattern occurs when there is an extended column
of Os without a significant reversal.
✅ Signals extreme selling pressure—can indicate panic selling or
capitulation.
✅ Often leads to a sharp reversal as sellers exhaust their positions.
✅ Confirmation is crucial—a strong column of Xs following the pattern
signals a potential trend change.

Classic Long Tail Down
A long column of Os without a
reversal.
Look for a reversal with a
strong X column before
entering.
Capitulation Long Tail
A steep drop that signals
panic selling.
Buy when a sharp reversal in
Xs appears.
Fake Breakdown
Price drops aggressively,
then recovers quickly.
Avoid shorting; wait for
confirmation of direction.
Exhaustion Selling
Sellers aggressively push
price down but fail to
continue.
Look for bullish confirmation
before going long.

1. Reversal Strategy After Long Tail Down
Setup:
• A long column of Os forms, indicating strong selling pressure.
• Look for a column of Xs with at least 3 boxes up, signaling a reversal.
Entry:
• Buy once price moves 3 Xs higher than the lowest O column.
Stop-Loss:
• Below the lowest O in the pattern.
Profit Target:
• Measure the height of the Long Tail Down and project it upwards.

2. Continuation Strategy After Long Tail Down
📌 Setup:
• A Long Tail Down appears in a strong downtrend without a
significant X-column reversal.
• Price continues forming Os, confirming bearish momentum.
🎯 Entry:
• Sell when price breaks below the previous low in a new O column.
🛑 Stop-Loss:
• Above the last X-column high.
💰 Profit Target:
• Project the length of the Long Tail Down downward.

Conclusion
• The Long Tail Down pattern signals excessive selling pressure—often followed
by a reversal.
• Traders should wait for a confirmation column of Xs before taking long
positions.
• In a strong downtrend, the pattern can indicate further bearish momentum.
Significance
✅ Helps identify potential bottom formations and exhaustion points.
✅ Provides high-probability reversal opportunities after excessive selling.
✅ Alerts traders to avoid panic selling and wait for confirmation.

Big Burst Up / Super Pattern in
Presented By :

Big Burst Up / Super Pattern
Key Takeaways
✅ A Big Burst Up (Super Pattern) is a strong bullish
breakout characterized by a long column of Xs.
✅ It signals aggressive buying pressure and a
potential start of a strong uptrend.
✅ The pattern typically follows a period of
consolidation or after breaking a key resistance
level.
✅ Confirmation is crucial—a minor pullback followed
by continuation adds reliability.

Big Burst Up
A long column of Xs without
major pullbacks.
Enter long after a minor
retracement or breakout
confirmation.
Super Pattern Breakout
A strong breakout after
consolidation.
Buy on breakout above a key
resistance level.
Gap-Like Surge
Sudden aggressive move
upwards.
Avoid chasing; wait for price to
stabilize before entering.
Exhaustion Burst
A sharp upmove followed by an
immediate reversal.
Be cautious of overextended
moves; watch for profit-taking
signals.

1. Breakout Confirmation Strategy
📌 Setup:
• Identify a strong column of Xs breaking above a key resistance level.
• Look for follow-through buying pressure confirming the breakout.
🎯 Entry:
• Buy when price continues to form new Xs after the initial breakout.
• Conservative traders can wait for a minor pullback and support confirmation.
🛑 Stop-Loss:
• Below the breakout level or the last minor retracement.
💰 Profit Target:
• Measure the previous trading range and project upwards.

2. Momentum Continuation Strategy
📌 Setup:
• A long column of Xs forms after a period of consolidation.
• Momentum traders look for sustained buying pressure.
🎯 Entry:
• Buy once price makes another 3-box X move after the initial burst.
🛑 Stop-Loss:
• Below the last O column before the breakout.
💰 Profit Target:
• Hold until price forms a clear resistance level or shows reversal signals.

Conclusion
• Big Burst Up patterns signal strong momentum and a bullish breakout.
• Avoid chasing the move—wait for confirmation or a pullback before entering.
• These patterns can indicate the start of a major uptrend if sustained buying
continues.
Significance
✅ Helps traders identify strong bullish momentum early.
✅ Effective for breakout and momentum trading strategies.
✅ Provides clear stop-loss and profit-target guidelines for high-probability trades.

Pole Warning Pattern in
Presented By :

Pole Warning Pattern
Key Takeaways
✅ The Pole Warning Pattern is an extended column of
Xs (upward pole) or Os (downward pole) without
consolidation.
✅ Indicates overextended moves that may lead to a
reversal or retracement.
✅ Typically follows a strong breakout, but caution is
needed as price may reverse sharply.
✅ Traders should avoid chasing the move—waiting for
a pullback or consolidation increases trade success.

Pole Warning Pattern
Upward Pole Warning
A long column of Xs without
a correction.
Look for retracement or
consolidation before buying.
Downward Pole
Warning
A long column of Os with no
reversal.
Avoid panic selling; wait for a
potential bounce.
Fake Breakout Pole
Price surges but fails to hold
gains.
Avoid chasing; confirm trend
continuation.
Exhaustion Pole
A rapid price increase
followed by reversal.
Be cautious—watch for profit-
taking signals.

Pole Warning Pattern Trading Strategies
1. Cautious Breakout Entry Strategy
📌 Setup:
• A long column of Xs (bullish pole) or Os (bearish pole) appears.
• Price moves significantly in one direction without a retracement.
🎯 Entry:
• Wait for a pullback or consolidation before entering.
• Buy if a 3-box reversal in Xs appears after an Upward Pole.
• Sell if a 3-box reversal in Os follows a Downward Pole.
🛑 Stop-Loss:
• Below the last support level (for long trades) or above resistance (for short
trades).
💰 Profit Target:
• Measure the pole height and project a 50% retracement as the first target.

2. Pole Exhaustion Reversal Strategy
📌 Setup:
• An extremely long column of Xs or Os appears, often after strong moves.
• The price shows hesitation or forms a reversal column (3-box move in the opposite
direction).
🎯 Entry:
• Enter a counter-trend trade when price reverses at least 3 boxes.
🛑 Stop-Loss:
• Beyond the highest X (for short trades) or lowest O (for long trades).
💰 Profit Target:
• 50%-75% retracement of the pole move.

Conclusion
• The Pole Warning Pattern signals extreme moves that may not be sustainable.
• Waiting for a retracement or reversal confirmation reduces risk.
• Traders should avoid chasing a pole move, as exhaustion can lead to sharp reversals.
Significance
✅ Identifies overbought and oversold conditions early.
✅ Prevents traders from entering late in a trend.
✅ Provides high-probability reversal or pullback trading opportunities.

Complex Chart Patterns in
Presented By :

Complex Chart Patterns in Point & Figure (P&F) Trading
Key Takeaways
• Point & Figure (P&F) charts focus on price movement, filtering
out noise from time-based fluctuations.
• Complex P&F patterns provide strong entry and exit signals.
• Understanding these patterns helps traders predict breakouts,
reversals, and trend continuations.

Pattern Interpretation Strategy
Triangle
Price compression, signals potential
breakout.
Enter on breakout direction confirmation.
Shakeout
Sudden drop and recovery; traps weak
hands.
Buy after support is regained.
Trendline Breakout
Price breaks above/below established
trendline.
Enter trade in breakout direction with stop-
loss.
Signal Reverse Patterns Sharp reversal after false breakout. Trade opposite the false breakout direction.
Trap Pattern Price fakes a breakout, then reverses.
Wait for confirmation before entering a
trade.
Long Tail Down Pattern Rapid decline followed by quick recovery. Bullish sign; enter long after a rebound.
Big Burst Up / Super
Pattern
Explosive upside move; high momentum. Ride trend but watch for overextension.
Pole Warning Pattern Rapid, unsustainable rise or drop. Expect sharp reversal or consolidation.

Trading Strategies
1. Triangle Breakout Strategy
o Identify a tightening range in a triangle formation.
o Enter long on an upside breakout or short on a downside breakout.
o Set stop-loss just outside the pattern.
2. Shakeout & Trap Pattern Strategy
o Wait for a false breakdown followed by a strong reversal.
o Enter in the opposite direction once support/resistance is regained.
o Use stop-loss below the shakeout low/high.

Trading Strategies
3. Trendline Breakout Strategy
o Confirm a breakout beyond a significant trendline.
o Enter trade after a retest of the breakout level.
o Target the next key resistance/support zone.
4. Big Burst Up Strategy
o Enter long on strong volume breakout.
o Take partial profits at resistance zones.
o Watch for exhaustion signs (like Pole Warning) to exit early.

Conclusion
• Complex P&F patterns offer a systematic approach to identifying high-probability trades.
• Traders should wait for confirmation before entering positions to avoid false signals.
• Managing risk with stop-loss and profit targets is key to maximizing returns.
Significance
• These patterns help traders spot market manipulations and institutional activity.
• They provide objective buy/sell signals without relying on time-based distortions.
• Used effectively, they enhance trading precision and profitability.

Next Chapter 4 - Point-and-Figure Patterns
and Analysis - Part II
Section 4 - Chart Pattern Analysis
Presented By :

Section 4 - Chapter 4 - Point-and-Figure Patterns and Analysis - Part I

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