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1988issue C051-3

Constructing trend definitions with filters and lines

A market trend is treated as a continuing condition rather than a one-bar event. When a glance does not make direction obvious, the construction locks the reversal that still counts as noise, the percentage base that makes up and down swings comparable, the scale used to draw a line, and the break that ends the active definition.

  • A market trend is treated as a continuing condition rather than a one-bar event, and smaller opposite swings sit inside larger bull or bear phases.
  • Point-and-figure and filtered-wave constructions keep the current direction until a reversal of a stated size appears, so smaller wiggles are ignored.
  • Comparable up and down swings use the swing bottom as 100 percent in both directions, because a 10 percent decline is larger than a 10 percent advance if each swing starts at 100 percent.
  • An uptrend line is drawn through successive lows and a downtrend line through rally tops; a break of that line, or a push through prior highs or lows, is treated as a change of direction.
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Current trackPoint and figure chart37 readingsTrendline128 readingsSupport and resistance170 readings

A continuing condition

A market trend is treated as a continuing condition rather than a one-bar event. Smaller opposite swings sit inside larger bull or bear phases. When a glance at the chart does not make direction obvious, an objective construction is preferred over visual inspection alone.

Reversal size that still counts as noise

Point-and-figure construction continues price in one direction until a reversal of a stated number of points occurs, so smaller wiggles are filtered out. A filtered-wave construction ignores smaller reversals and keeps the current direction until a reversal of a stated size appears. One filtered-wave definition treats any swing larger than 30 percent as a bull or bear market and ignores all smaller swings.

A comparable percentage base

If each swing starts at 100 percent, a 10 percent decline is larger than a 10 percent advance. Comparable up and down swings use the swing bottom as 100 percent in both directions. A percentage-reversal filter measures swing size in percent rather than a fixed number of points.

Identification after the turn

A filtered-wave trend is identified only after the turn. An uptrend is not known until some time past the bottom. That delay is lagging-identification: the new direction is recognized only after the turning point has already occurred.

The break that ends the definition

Zigzag reversals are defined by support-resistance violations: a push through prior highs or prior lows. An uptrend line is drawn through successive lows and a break of that line is treated as a shift to a downtrend. A downtrend line is drawn through rally tops and a break is treated as a shift to an uptrend. A break of an industrial average through support or resistance is described as needing a matching break on a transportation average before the trend change is treated as valid. That pairing is a confirmation-rule: more than one related average must break the same kind of level before a trend change is accepted.

The scale used to draw the line

Stock trendlines are constructed on a logarithmic-scale so a decline from 120 to 100 is the same percentage construction as a decline from 12 to 10. On that price axis, equal percentage moves occupy equal distance.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
1 of 30 in the Point and figure chart track
19891-7 pp.Next on Point and figure chartReversal count as the clock on point-and-figure chartsA point-and-figure chart adds a new column only after a qualifying reversal, so a stretch of calendar time that never warrants a mark leaves the chart blank.
All readings on this track · 30 readings
  1. 1988Constructing trend definitions with filters and lines
  2. 1989Reversal count as the clock on point-and-figure charts
  3. 1989Point-and-figure setup and session-average entry windows
  4. 1989Two-scale point-and-figure trendlines and stop placement
  5. 1989Adjusted net asset value, tighter reversals, and written stops on a fund point-and-figure chart
  6. 1990Stack option odds after point-and-figure signals
  7. 1991Constructing a point-and-figure downtrend-break
  8. 1991Constructing point-and-figure box and reversal charts
  9. 1991Constructing a close-tested one-two ladder on a point-and-figure chart
  10. 1992Point-and-figure, breadth, and volume as falsifiable hypotheses
  11. 1992Three-gate stock selection with ranks and point and figure
  12. 1993Constructing combined stochastics and point-and-figure relative strength
  13. 1997Point-and-figure box scale and reversal construction
  14. 2000Cotton weekly point-and-figure: late-stage decline, named weekly close
  15. 2000Constructing point-and-figure charts for support, resistance, and breakouts
  16. 2001Swiss franc: seasonal permission and a weekly point-and-figure breakout
  17. 2001Constructing point-and-figure boxes and reversals
  18. 2002Point-and-figure construction: box, live column, and three-box reversal
  19. 2003E-mini point-and-figure box-size and a descending-triangle breakout
  20. 2003A reconstruction critique of point-and-figure daytrading
  21. 2004Point-and-figure column moving-average crossovers
  22. 2005Box-series transforms for trend and channel work
  23. 2006Constructing bearish point-and-figure support breaks
  24. 2008Point-and-figure forex breakouts and triangles
  25. 2012From tactile charts to written trade rules
  26. 2013Combine a Point and figure chart and Moving-average crossover inside one System optimization procedure
  27. 2015Point-and-figure time and volume limits are conventions to test
  28. 2016Measurement-first critique of indicator defaults
  29. 2017Point-and-figure construction, reversals, and column-based overlays
  30. 2019A 2019 charting case as a three-check trend classroom
By fieldTrend and channels181 readingsBy year198866 readings
All 37 readings tagged Point and figure chart
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