Constructing point-and-figure objectives across chart scales

What the construction records

Point-and-figure construction records directional X and O runs from price structure plus a chosen box size and reversal size. It is presented as having defined formations, directional signals, trendlines, and countable price objectives.

A triangle pattern is a contracting formation. Upside or downside penetration is the trigger for a horizontal count or a vertical count. Chart-scale analysis is the choice between arithmetic boxes and logarithmic boxes, and that choice decides whether the count is a simple product or a compounded percentage.

Counts after a triangle is penetrated

After a formation is penetrated, two objective constructions are available. A horizontal count converts how many columns define the formation into a price-objective increment. A vertical count converts the length of the breakout column into a price-objective increment, and it is used only after that column has reversed.

The usual reversal size used when those counts are built is three boxes. Reversal size is how many boxes must print against the active column before a new column is started. Formation strength is the count term, width or breakout-column height, that is applied once more to the reversal increment when the objective is built. In the illustrated case the breakout column contains five Xs.

Arithmetic projection

On an arithmetic scale, box size is a fixed price amount. An arithmetic projection adds the product of count, box size, and reversal size to the formation extreme.

On that scale, a bullish symmetrical-triangle breakout with a formation low of 40, a count of 5, a box size of 1, and a three-box reversal produces a 55 objective from both the horizontal and the vertical formulas.

Logarithmic projection

On a logarithmic point-and-figure chart each box is a percentage change, so horizontal and vertical counts cannot be applied as a simple product of box size and reversal size. A logarithmic projection compounds the box percentage through the reversal and then through the count, then applies that percentage to the formation extreme.

With a 2.33 percent box, a three-box reversal compounds to 7.15 percent. Compounding that increment five times yields a 41.27 percent strength term and a 56.51 objective from a low of 40.

Bearish logarithmic objectives are built from the formation high with a discount-rate construction, using the reciprocal of the equivalent rise from the low so the count cannot imply a negative price.