In this section we concentrate a genre of charts referred to as reversal charts and, morespecifically, a subset known as the point and figure (P&F) chart in which the raw finan-cial data is converted into vertical columns of Xs and Os. A column of Xs represents ad-vancing prices while a column of Os indicates declining prices. (See Figure 11.1.)
HISTORY
The point and figure chart (also called the three box reversal method) was created inthe later nineteenth century. Roughly 15 years older than the bar chart, it is probably theoldest Western method of charting prices around. Its roots date way back into tradinglore, as it has been intimated that this method was successfully used by the legendarytrader James R. Keene during the merger of the Carnegie Steel Company into U.S. Steelin 1901. Keene was employed by Andrew Carnegie to distribute his holding, as Carnegierefused to take stock as payment for his equity interest in the company. Keene, usingpoint and figure charting and tape readings, managed to promote the stock and get ridof Carnegie’s sizable stake without causing the price to crash.
The point and figure method derives its name from the fact that price is recordedusing figures (Xs and Os) to represent a point hence point and figure. Charles Dow, thefounder of the Wall Street Journal and the inventor of stock indexes, was rumored to be a point and figure user, and the practice of point and figure charting is alive and well today on the floor of the Chicago Board of Trade.
Its simplicity in identifying price trends, support, and resistance and its ease of upkeep have allowed this method to endure the test of time, even in the age of web sites, personal computers, and the information explosion.
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