1991issue C101-3

Unfinished point-and-figure until filter, scale, and pivots measure percent

Conventional point-and-figure construction uses a fixed point size that does not measure relative importance. A percent-reversal-filter, a logarithmic-scale, and time-located-turning-points rebuild the worksheet so a trendline can be read as a percentage path.

A one-point or three-point point-and-figure filter drops small swings, but a one-point move can be material at $10 and minor at $100, so a fixed-point filter does not measure relative importance.
On an arithmetic-scale, a 5% move can be nearly invisible at low prices and look large at high prices, and a straight trendline implies a declining percentage rate of rise as price moves up the line.
Logarithmic point-and-figure construction uses a percent-reversal-filter, a logarithmic-scale, and time-located-turning-points that stay tentative until price reverses by the chosen percent.
After that rebuild, a trendline can be read as a percentage path across differently priced series, and earnings-multiple-bands can locate price on a simple multiple grid.

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Current trackChart scale analysis14 readings Point and figure chart56 readings Trendline139 readings

The unfinished worksheet

Conventional point-and-figure construction filters out moves smaller than a chosen point size, as in a one-point or three-point chart. A one-point move can be material for a $10 issue and minor for a $100 issue, so a fixed-point filter does not measure relative importance.

Until the reversal unit, the vertical axis, and the placement of pivots all measure the same kind of change, a drawn trendline is not yet a comparable channel across price levels.

Why an arithmetic-scale fails the chart-scale check

Chart-scale-analysis asks whether the vertical axis and the reversal unit measure the same kind of change, so a given percent occupies comparable space at high and low prices.

On an arithmetic-scale, a 5% move can be nearly invisible at low prices and look large at high prices. A constant 10% per week rise looks almost flat low on the chart and steep high on the chart.

A straight trendline on an arithmetic-scale implies a declining percentage rate of rise as price moves up the line. A logarithmic-scale places marks closer together as price rises, matching the shrinking importance of a point.

Percent filter, log scale, and time-located pivots

A logarithmic point-and-figure construction uses a percent-reversal-filter, a logarithmic-scale, and turning points placed on a time axis. Those confirmed swing pivots are time-located-turning-points, plotted at their calendar positions rather than in a time-free column grid.

A turning point cannot be finalized until price has reversed by the chosen percent. A temporary dotted or pencil segment can mark the candidate until that confirmation.

An illustrated construction used a 10% price filter so moves smaller than 10% were omitted, with a logarithmic vertical scale so vertical distance represented percentage change.

Trendlines and earnings-multiple-bands after the rebuild

After that rebuild, trendlines can be read as percentage paths, and charts of differently priced stocks or averages can be compared without point-scale distortion. A straight line across confirmed pivots is then a more stable percentage path than the same line on an arithmetic chart.

Horizontal lines equal to trailing-year earnings times fixed multiples such as 10, 20, or 30 locate price on an approximate price-to-earnings grid. Each line is an earnings-multiple-band. A path midway between the 20-times and 30-times lines corresponds to a ratio near 25.

Merry Go Round Enterprises, 10% reversal filter

Filtered closing path for Merry Go Round Enterprises: reversals smaller than 10% are dropped, the vertical scale is logarithmic, and each pivot is placed on its calendar date. Dashed earnings-multiple bands (EPS times a constant) sit under the price so a trader can read whether the stock is cheap or rich versus trailing earnings. Values were read from the plotted figure, not from a table.Merry Go Round Enterprises · weekly · 1990-01-01T00:00:00.000Z to 1991-03-31T00:00:00.000Z

Source uses a 10% price filter and a log price scale; turning points stay dotted until a 10% pullback confirms them. Digitized from the printed figure, so levels are approximate.

Educational research material, not investment advice. Historical source context does not establish present-day performance.

5 of 14 in the Chart scale analysis track

19921-15 pp.Next on Chart scale analysisA logarithmic point-and-figure construction with weekly breadth scoresPoint-and-figure was tried in early formation study and then set aside because the line-chart carried more information and could sit on a logarithmic-scale judged better for price changes.

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By fieldTrend and channels228 readings By year1991166 readings

All 14 readings tagged Chart scale analysis

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