Point and Figure is a charting technique that was developed by Charles Dow. It was traditionally composed of lines that were made up of X’s and O’s. (Investigator uses colors to distinguish the lines instead.) The height of each X and O box is based on a price range that is user determined. For example, if a price of a financial increment is between 5 and 20, the box height is 0.5 by default, while if prices are between 20 and 100, the box height is 1 by default. Point and Figure charting is unique in that a bar does not represent a specific date. New bars are created only if prices have reversed a certain number of boxes described by the formula below. Investigator gives you the flexibility by allowing you to change the price ranges, box increments, and the number of boxes for reversal.
The rules for plotting the Point and Figure lines are relatively simple. Investigator assumes that the first Point and Figure bar is an X bar. It then enters the following loop:
Begin X Loop:
If the current price bar’s high is at least one box higher than the current Point and Figure bar’s high, enter a new X and immediately go to the Begin X loop; otherwise, go to the next sentence.
If the current price bar’s low is at least the user determined number of boxes below the current Point-And-Figure bar’s high, start a new Point and Figure bar one box below the current Point and Figure bar’s high and go to the Begin O Loop; otherwise, go to the Begin X loop.
Begin O Loop:
If the current price bar’s low is at least one box lower than the current Point and Figure bar’s low, enter a new O and immediately go to the Begin O loop; otherwise, go to the next sentence.
If the current price bar’s high is at least the user determined number of boxes above the current Point and Figure bar’s low, start a new Point and Figure bar one box above the current Point and Figure bar’s low and go to the Begin X Loop; otherwise, go to the Begin O loop.
You can use Investigator's Bar Pattern Visual Editor to visually create your own Point and Figure bar pattern, or you can use some of the pre-defined Point and Figure patterns included with Investigator.
Reference: Kaufman, Perry J.. The New Commodity Trading Systems and Methods. New York, New York: John Wiley & Sons, 1987.