CHARTING
The Power Of Observation
Daytrading The E-Mini With Point & Figure
by Eugene Steele
Here's a look at how you can trade the e-mini with a classic charting
technique.
Point & figure charting has been largely ignored as a tool for daytrading,
but it is actually one of the most powerful techniques for successful daytrading
and a major tool for new traders. Whenever I show a trader a chart, the
first question I ask is, "What do you see?" One of the skills
of a good trader is the ability to see something on a chart that others
don't notice. That might mean spotting simple things such as which days
of the week or month act in a particular way. For example, you might try
to notice the relationship of price to trend changes: Can a change in trend
ever occur to the upside if the close is below the open? Can it occur on
the downside if the open is above the close? If you trade the same stock
in various time periods, look for consistencies. Point & figure charts
can aid you in making these types of observations.
POINT & FIGURE CHARTING
Point and figure charting was the method traders first used to track
the US stock markets, and it has gone in and out of favor over the years.
P&F is a simple method of following price action (see the sidebar,
"Point & figure technique," for a refresher on using the
method). Basically, a box size is defined to be equal to a specific price
shift. When price moves by the designated amount, an X is drawn in the
box. Should the price move down by that amount three times (a generally
accepted number), a circle or square is drawn to indicate a price reversal.
Figure 1: one-minute point & figure chart. The software has
automatically selected a box size of 0.64 and a price field using high/low
range. These parameters will not fit our trading, and they violate traditional
point & figure methods.
I was introduced to point & figure charting about 50 years ago. The
trader who showed it to me is now 87, and still uses P&F charts very
profitably. Let's take a look at the method and some charts.
...Continued in the September 2003 issue of Technical Analysis
of STOCKS & COMMODITIES
Excerpted from an article originally published in the September 2003
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2003, Technical Analysis, Inc.
Return to September 2003 Contents
