divplaced_ma.png 💥In the previous section, we discussed shifting the moving average up and down to form a band that helps filter out false signals. Using the same idea, we can filter out false signals by shifting the moving averages, but this time to the right instead of up and down. 💥Moving the moving average to the right slows down the signals generated by the moving averages. Although this can be a disadvantage, it has a positive effect by reducing jitter and making fake crossovers of the price line with moving averages more difficult to occur. The effect is similar to filtering out false signals, so this method should be applied to moving averages with a short number of days to compensate for the slowness of the signal caused by shifting. 💥One admired technical analyst and expert in using this method is Joe Dinapoli, who named this method of shifting the moving average to the right \"Displaced Moving Average.\" He suggests using a 25-day moving average with a 3-day shift to the right (symbolic 25x3) and a 3-day displaced 3-day moving average (3x3). 💥For trading signals, it is the same as using a simple moving average: a cut up signal indicates a buy, and a cut down signal indicates a sell, only that the signal will happen a little later, but there will be fewer false signals, which is a characteristic of the displaced moving average. DisplacedMovingAverage-5c86ae4b46e0fb00012c6739.png 💥Dinapoli also proposed the concept of Double Repenetration (DR) as a supplement to the displaced moving average. If the price closes below the displaced moving average, then bounces back above it, and then crosses below the displaced moving average again (i.e., it crosses two times, hence the name double repenetration), it appears that the short-term trend of the price during the double repenetration is relatively flat. This is a trend change signal that is more pronounced than a normal downtrend, and in the case of an uptrend, it only changes direction. However, the double repenetration doesn\u0027t have to happen every time a trend changes. It only makes the signal stronger if it does occur. 💥However, Dinapoli noted that although the displaced moving average (even with DR) gives good signals, it is prone to errors. Therefore, it should be accompanied by signals based on Fibonacci ratios.
💥Moving Average (MA) is a popular technical analysis tool that is used to smooth out price action and identify trends. It is calculated by averaging a selected number of prices, usually closing prices, over a specific period of time. The Moving Average is then plotted on the price chart to provide traders with an indication of the direction of the trend. 💥Moving Average Channels are two lines drawn above and below a Moving Average line at a certain distance or percentage. This creates a channel around the Moving Average line that acts as a dynamic support and resistance zone. When prices move above the upper channel line, it suggests that the trend is bullish, and when prices move below the lower channel line, it suggests that the trend is bearish. 💥Shifted Moving Averages are Moving Averages that are displaced forward or backward in time. This means that the Moving Average is calculated using past prices, but is plotted ahead of current price action. This can be useful in identifying potential support and resistance levels that may not be visible on the price chart using traditional Moving Averages. 💥Envelope Formation is a technique that uses two Moving Averages that are shifted a certain percentage or distance away from each other. The area between the two Moving Averages creates a channel or envelope around the price action, which acts as a dynamic support and resistance zone. The Envelope Formation can be useful in identifying potential trend reversals when prices move beyond the channel boundaries. 💥Overall, Moving Averages and their variations can be effective tools in identifying trends and potential support and resistance levels. Traders should use them in conjunction with other technical analysis tools and indicators to confirm signals and make informed trading decisions. 💥Additionally, traders can also use Moving Average Shift to identify potential support and resistance levels. A Moving Average Shift is created by shifting the Moving Average line forward or backward in time. This can help identify levels where the Moving Average has acted as support or resistance in the past and may do so again in the future. 💥Moving Average Envelopes are another technical analysis tool that can act as support and resistance levels. They are similar to Moving Average Channels, but instead of being drawn at a fixed distance or percentage from the Moving Average line, they are drawn at a fixed percentage of the price. This creates a channel that widens or narrows based on the volatility of the price. When prices move above the upper envelope line, it suggests that the trend is bullish, and when prices move below the lower envelope line, it suggests that the trend is bearish. 💥Overall, Moving Averages, Moving Average Channels, Moving Average Shifts, and Moving Average Envelopes can all be used to identify potential support and resistance levels and help traders identify trends in the market. 💥💥The Moving Average line that uses a short number of days in its calculation may give false signals because it moves too quickly. To filter out these false signals, some technical analysts prefer to use a Shifted Moving Average line. In the case of a buy signal, the Moving Average is shifted up, while in the case of a sell signal, it is shifted down. Shifts are generally expressed as a percentage of the Moving Average, and they are often used with Moving Averages that use a short number of days for their calculations. 💥Another important use of shifting the Moving Average line is to create an Envelope that serves as a framework for price movements. In practice, this is often referred to as a Moving Average Channel or Band. The Envelope is used as a short-term support and resistance zone, and the price will move within this Channel or Band as long as the trend remains unchanged. To determine whether the trend is changing or not, the primary tool used is the central Moving Average. In essence, this system uses the Moving Average as a trading signal for the primary trend, while the Channel or Band serves as a secondary trend trading signal that moves along with the primary trend. 💥The upper line of the Band (Upper Channel) acts as a resistance. When the price approaches the Upper Band, it serves as a warning signal that the price has already risen too high, and traders should gradually sell some of their holdings to take profit in the short term. For the long term, it is advisable to follow the main trend using simple moving averages. On the other hand, the lower channel of the band acts as support, meaning that if the price falls close to the Lower Band, it is a warning that the price has dropped significantly, and traders should be prepared to wait for some time in the short term. 💥In practice, traders should understand the difference between shifting a moving average to filter out false signals and shifting a moving average to create a support/resistance envelope. They must always be aware of what they are doing and the purpose of their Shift. There are several ways to create a Moving Average Channel or Band. 👉This method is built on moving average lines, with the Upper Channel calculated from the high and the Lower Channel calculated from the low. We call this band the High-Low Channel. The most commonly used values are the 10-day average of the high and the 8-day average of the low. This method is commonly used to filter out false signals, but it can also be modified to create an envelope if appropriate parameters are set. 👉Percent Shift: This method shifts the moving average up (to the Upper Channel) and down (to the Lower Channel) by a percentage of the moving average calculated from closing prices. A popular percentage shift amount is 3.5-4% for a 20-25 day moving average. This is also a way to filter out false signals. However, this method has a disadvantage, which is that the magnitude of the shift when measured in absolute terms is small when the price is low, but quite large when the price is high. Therefore, the size of the band will continue to widen as the price goes up, and gradually shrink as the price falls. This may cause traders to buy too soon (due to a low price and less shift) or sell too late (due to a high price and high shift). 👉The method of shifting to create an envelope originated from a study by John Hurst, which was conducted in the days when computers were not as prevalent as they are today. The envelope is based on the moving average, whose number of days is determined by the length of the cycle, and must be able to cover price movements in a shorter cycle. However, this is a rather subjective approach since different people may draw different images. Moving-Average-Channel-Day-Trade-Winning-Trade.jpg Moving-Average-Channel-Day-Trade-Losing-Trade.jpg 💥Marc Chaikin, a well-known technical analyst at Bomar Securities, suggests that using a percentage shift for the moving average may not be flexible enough. For example, at one time, 3% may be too much (for instance, when the stock is moving sideways and not bouncing anywhere, the band will be too wide), while in other cases, such as when the stock follows a steep trend, 3% will be too narrow (the stock will run through the band like a locomotive). Hurst\u0027s envelope construction is also somewhat dependent on individual thoughts, which is uncertain. Therefore, the market should help determine the percentage of the shift at any given time. 💥The concept of Bomar Bands originated from Marc Chaikin\u0027s suggestion to shift the moving average in percentage terms such that it covers at least 85% of past prices. For example, if we use a 25-day moving average, the percentage shift today should be large enough to cover 85% of the prices of the past 25 days. The Bomar Bands adjust their percentage shift depending on market conditions, indicating trend inertia. If the market moves sideways, the percentage shift is small, but it adjusts to a higher percentage when the price follows a trend. The Bomar Bands narrow when the price starts to stagnate or the sales force runs out, even if the price continues to rise or decline. The width and narrowness of the Bomar Bands can be used as signal indicators of the main trend. 💥John Bollinger further developed this concept by shifting the moving average in proportion to the standard deviation of the price, typically 11.96 (or 12) times the standard deviation calculated from the number of days used to calculate the moving average. The resulting band should cover up to 90% of the past price if the price had a normal distribution. Bands calculated in this way are called Bollinger Bands, which have the same properties as the Bomar Bands, with their width and narrowness adjusted according to market conditions. The Bollinger Bands use standard deviation, which is an indicator of the variance or volatility of the price, making it easier to calculate than the Bomar Bands, which rely on subjective adjustment of the percentage shift.
Moving-Average-Formula..jpg Simple Moving Average (SMA) 💥Moving averages are one of the most commonly used technical indicators in trading. They are used to identify trends, support and resistance levels, and potential buy or sell signals. There are several types of moving averages, including the Simple Moving Average (SMA), Exponential Moving Average (EMA), and Weighted Moving Average (WMA). Each type of moving average has its own unique formula for calculating the average, and traders will often choose the type of moving average that best suits their trading strategy. SMA2_602x345.png 💥The Simple Moving Average (SMA) is the most basic type of moving average. It is calculated by taking the average of a set number of periods, with each period representing a specific time frame (such as daily or hourly). For example, a 10-day SMA would be calculated by adding up the closing prices of the last 10 days and dividing that number by 10. The SMA gives equal weight to each period, regardless of how recent or distant it is. Exponential Moving Average (EMA) 💥The Exponential Moving Average (EMA) is similar to the SMA, but it gives more weight to recent prices. This is done by using a weighted average formula that puts more emphasis on the most recent periods. The EMA is considered to be more responsive to changes in price than the SMA, which can make it a better indicator of short-term trends. However, because the EMA gives more weight to recent periods, it can be more susceptible to false signals. ema.jpg 💥The Weighted Moving Average (WMA) is similar to the EMA, but it gives even more weight to recent prices. This is done by using a formula that multiplies each period by a predetermined weight factor. The most recent periods are given the highest weight, while the older periods are given progressively lower weights. The WMA is considered to be the most responsive of the three moving averages, but it can also be the most volatile. Weighted Moving Average (WMA) 💥To calculate moving averages, traders use data and prices from the stock or index they are trading. This data can be collected over any period of time, but the most common periods are 10, 20, 50, and 200 days. Traders will often use multiple moving averages, each with a different period, to get a better picture of the trend. For example, a trader might use a 50-day SMA to identify the long-term trend and a 10-day EMA to identify short-term trends. WMA2_Whipsaw602x345.png 💥In conclusion, moving averages are an important tool for traders looking to identify trends and potential buy or sell signals. The three most common types of moving averages are the Simple Moving Average (SMA), Exponential Moving Average (EMA), and Weighted Moving Average (WMA). Each type has its own unique formula for calculating the average, and traders will often choose the type of moving average that best suits their trading strategy. To calculate moving averages, traders use data and prices from the stock or index they are trading, and will often use multiple moving averages with different periods to get a better picture of the trend.
Moving_Average_8.png 💥Using two moving averages can provide more precise buy and sell signals as well as act as support and resistance levels in both uptrends and downtrends. 💥To use two moving averages for buy and sell signals, traders often use a shorter-term moving average and a longer-term moving average. The shorter-term moving average reacts more quickly to price changes, while the longer-term moving average reacts more slowly. When the shorter-term moving average crosses above the longer-term moving average, it is a bullish signal and may indicate a buy opportunity. Conversely, when the shorter-term moving average crosses below the longer-term moving average, it is a bearish signal and may indicate a sell opportunity. 💥In an uptrend, the longer-term moving average can act as a support level, while the shorter-term moving average can act as a resistance level. Traders can use these levels to enter and exit positions. For example, during an uptrend, if the price falls to the longer-term moving average and bounces back up, it can be a buying opportunity. On the other hand, if the price rises to the shorter-term moving average and fails to break above it, it can be a selling opportunity. 💥In a downtrend, the longer-term moving average can act as a resistance level, while the shorter-term moving average can act as a support level. Traders can also use these levels to enter and exit positions. For example, during a downtrend, if the price rises to the longer-term moving average and fails to break above it, it can be a selling opportunity. On the other hand, if the price falls to the shorter-term moving average and bounces back up, it can be a buying opportunity. 💥It is important to note that using moving averages alone may not always provide accurate signals, and traders should always consider other technical indicators, as well as fundamental and market factors, when making trading decisions. moving-average_body_EURUSDMA.png.full.png (Double Moving Average Crossover) 💥The Moving Average (MA), also known as the moving average line, appears as a line that moves according to the price of a stock or index. This is caused by calculating the average of the stock price or market index using historical data, based on a user-specified period. It is an easy-to-use tool (indicator) that is popular among investors for finding trading opportunities (support and resistance) and identifying trends. Over time, the moving average has developed into various types, including the Double Moving Average Crossover. 💥Sometimes, prices may experience false fluctuations caused by abnormal events or excessive adjustments, which can result in moving averages giving false signals. This is especially true when using a low number of days to calculate the average since it can be easily affected by small movements, making it prone to errors. One commonly used method to avoid this is to use moving averages calculated on a small number of days to smooth out the average, and then use another moving average calculated from a larger number of days as a signal. This helps to reduce the false signals caused by irregularities and smooth out normal price fluctuations. However, this method can give slower signals because the moving average moves slower than the price. 💥Reading signals from two moving averages is similar to using a single moving average. If the short-term moving average crosses down the long-term average, it is a sell signal, while if the short-term average crosses over the long-term average, it is a buy signal. 💥In addition, the moving average can act as both support and resistance. During an uptrend, the price will be above the moving average, making the moving average act as support. If the price changes direction and falls below the support moving average, it indicates a trend change (downtrend). The moving average then becomes resistance when it returns above the price line.
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technical-analysis-1.jpg 💥A moving average is a commonly used technical indicator in financial market analysis that helps to smooth out price data by creating a constantly updated average price over a certain period of time. The moving average is calculated by adding up the prices of the security or asset being analyzed over a certain period of time and then dividing by the number of prices in that period. As new prices are added, the oldest price is dropped, and the average is recalculated, resulting in a moving average line on the chart. 💥Moving averages can be used to identify the direction and strength of a trend. In an uptrend, when the price is above the moving average, it is a bullish signal, and traders may look for buying opportunities. Conversely, in a downtrend, when the price is below the moving average, it is a bearish signal, and traders may look for selling opportunities. 💥The most common types of moving averages are the simple moving average (SMA), which calculates the average price over a specific number of periods, and the exponential moving average (EMA), which gives more weight to the most recent prices. Traders can choose the period length and type of moving average that best suits their trading strategy and time frame. OHGVJOHQRFF2HIINCDWUVNV32I.jpg 💥A moving average is a smoothing tool used for tracking price trends that are almost over or about to enter a new trend. Its main purpose is to help remove anomalies from price information, such as sudden price rises or drops that may not have a specific reason behind them. By averaging out these prices, the moving average line becomes smoother. 💥During an uptrend, prices tend to rise, causing the moving average line to move higher. However, because the moving average is calculated using past data, it will always be lower than the current price. This is because the previous day\u0027s price is lower than today\u0027s, as per the definition of an uptrend. 💥In a downtrend, the price falls, but the moving average falls more slowly due to its weighted average nature. Once the price falls below the moving average, it confirms the trend change from an uptrend to a downtrend. 💥Buy signals occur when the price crosses its moving average from bottom to top or when the shorter moving average crosses the longer moving average from bottom to top. Sell signals, on the other hand, occur when the price crosses its moving average from above to below or when the shorter moving average crosses the longer moving average from top to bottom.
Point-and-Figure-Chart-7.png image-25.png 💥The Point-and-Figure diagram is a popular tool among technical analysts and traders for charting price movements in financial markets. It is a type of chart that uses X\u0027s and O\u0027s to represent upward and downward price movements, respectively, and is widely used for identifying trends and patterns. 💥One of the key techniques that traders use in Point-and-Figure charting is drawing trend lines to identify support and resistance levels. A trend line is a straight line that connects two or more points on a chart and can help traders identify the direction of a trend and potential price targets. 💥To draw a trend line in Point-and-Figure charting, traders must first identify two or more significant highs or lows on the chart. These points are then connected using a straight line, with the line being extended to the right to identify potential price targets. 💥When drawing a trend line, it is important to ensure that it is not drawn too steeply or too shallowly. A steep trend line may not provide reliable support or resistance levels, while a shallow trend line may not accurately reflect the direction of the trend. 💥Traders can use trend lines in Point-and-Figure charting to identify potential price targets. When a trend line is broken, it can be an indication that the trend is reversing and that a new price target may be emerging. Traders may use other technical analysis tools, such as moving averages or momentum indicators, to confirm the trend and identify potential entry and exit points. 💥In addition to trend lines, traders can also use other technical analysis techniques in Point-and-Figure charting to identify potential price targets. These include identifying patterns such as double tops or bottoms, triple tops or bottoms, and bullish or bearish flags. 💥Double tops or bottoms occur when two consecutive columns of X\u0027s or O\u0027s reach the same level and fail to break above or below it. This can be an indication of a potential trend reversal and may be used by traders to identify potential price targets. 💥Triple tops or bottoms occur when three consecutive columns of X\u0027s or O\u0027s reach the same level and fail to break above or below it. This can be an even stronger indication of a potential trend reversal and may provide traders with more reliable price targets. 💥Bullish or bearish flags occur when there is a sharp price movement followed by a period of consolidation. These patterns can be used by traders to identify potential price targets once the price breaks out of the consolidation phase. 💥💥Drawing trend lines and identifying potential price targets is an essential part of technical analysis in Point-and-Figure charting. Traders should use a combination of tools and techniques, including trend lines and pattern recognition, to identify potential entry and exit points and manage their risk. While no single technique can guarantee success, combining multiple techniques can increase the likelihood of making informed trading decisions. 👉Trend Lines👈 💥In addition to the above, trend lines at a 45-degree angle are also introduced in point-and-figure charting to help determine the current trend. These lines can be used as filters in providing trading signals. Here\u0027s how to draw them: 💥In an uptrend, the trend line is called the bullish support line and is drawn at a 45-degree angle up to the right. Start from the square below the end of the O symbol and move down one square, as shown in the example picture. As long as the price stays above that line, the trend is still considered bullish. 💥Conversely, in a downtrend, the trend line is called the bearish resistance line and is drawn at a 45-degree angle down to the right. Start from the box that is above the top of the X symbol and move up one box, as shown in the example picture. As long as the price is below the downtrend line, the trend is still considered bearish. 👉Price Targets👈 💥Although the above studies have led traders to various buying or selling signals, a trader may wonder where the buy or sell signal is, and where to enter or exit to make a profit before the trend changes. One method that can be used to solve such problems is to set price objectives, which can be done in two ways: 1. Horizontal count: The basic principle behind this method is that the time interval a stock takes to consolidate is important in determining its potential move. Therefore, the spread width is used to forecast price levels for an upward or downward movement. To adapt to the test, the formula for finding price targets in the event of a rising price is: Hu = PL + (W X RV) Where: Hu = target price level PL = the lowest price (from the O symbol) used as the basis for the calculation W = the number of columns used as the basis for the calculation RV = reversal value = (box size X the number of boxes) The price level used as a base must be clearly identified. The column count or W value excludes the breakout column. RV is the minimum reversal. The formula used to find the target in the event of a declining price is: Hd = PH - (W X RV) Where: Hd = target price level PH = the highest price (from the X symbol) used as the basis for the calculation W = number of columns used as a basis for the calculation RV = reversal value 2. Vertical count: This method is simpler than the first method. The formula used to find price targets for an upward movement is: Vup = minimum base price + (number of boxes in the first reversal X RV) The formula used to find price targets for a downward movement is: Vdown = highest base price - (number of boxes at first reversal X RV) 💥With the principles mentioned above, whether it\u0027s about creating a diagram or the form that will give a buy or sell signal, this technical analysis tool called Point and Figure charting should provide beginner traders with the right methods and strategies to reduce risk before entering the market to trade seriously.
9eb85c0b550e1877ce51e70db80f52ea--to-read-charts.jpg d0abd6ee-f31c-4e01-95dc-cd03de9f4eae.png b09223ca-7e94-42ac-b1e7-a769735a6b19.png Point-Figure-Chart-Explained.jpg In Point-and-Figure charting, traders can look for several buy and sell signals based on support and resistance levels: Bullish signal: A buy signal occurs when the price breaks above a resistance level, creating a new column of X\u0027s. This indicates that the buyers have gained control and the price is likely to continue to rise. Bearish signal: A sell signal occurs when the price falls below a support level, creating a new column of O\u0027s. This indicates that the sellers have gained control and the price is likely to continue to fall. Double top pattern: A sell signal occurs when two consecutive columns of X\u0027s reach the same level and fail to break above it. This indicates that the buyers are losing momentum, and a reversal may be imminent. Double bottom pattern: A buy signal occurs when two consecutive columns of O\u0027s reach the same level and fail to break below it. This indicates that the sellers are losing momentum, and a reversal may be imminent. Triple top pattern: A sell signal occurs when three consecutive columns of X\u0027s reach the same level and fail to break above it. This indicates that the buyers are struggling to push the price higher, and a reversal may be imminent. Triple bottom pattern: A buy signal occurs when three consecutive columns of O\u0027s reach the same level and fail to break below it. This indicates that the sellers are struggling to push the price lower, and a reversal may be imminent. 👉 Traders can also look for other patterns, such as bullish and bearish flags and wedges, which can provide additional buy and sell signals. However, it\u0027s important to note that no single pattern can guarantee success, and traders should use other technical analysis tools and risk management strategies to make informed trading decisions. 💥In this section, we will delve deeper into the patterns of buy and sell signals that can be observed in the Point-and-Figure diagram. There are many patterns that traders use for technical analysis, but we will focus on two examples: the buy signal on the breakout of a triple top and the sell signal on the downside breakout below a bullish support line. 💥Understanding the principles behind buying or selling signals makes it easy for traders to recognize any pattern formation. In the case of a buy signal, a breakout of resistance occurs after the third peak. Breaking through resistance, according to the principles of support and resistance, indicates a buy signal. The next question is how to identify resistance. The answer lies in the peak of the last two X signals, which turn into O signals indicating selling pressure greater than buying pressure, hence forming a resistance line. When the X signal crosses above, it indicates that demand outstrips supply, resulting in the price rising and a buy signal being generated. 💥On the other hand, the sell signal occurs when the price breaks the support line on the downside, indicating that selling pressure is greater than the support along the trend line or that there is an oversupply, which inevitably leads to a price drop. Traders who used to buy along the trend line are unable to continue buying, due to the increase in selling pressure, which triggers further selling. Thus, a sell signal is generated. 💥However, it is important to note that the breakout point may not always result in an immediate buy or sell signal. Moreover, it is said that the ascending triple top gives the most reliable buy signal, while the breakout of the triple bottom gives the most reliable sell signal. But the level of trust in these signals may vary from trader to trader, and it is ultimately up to each trader to determine their own level of confidence in these patterns.
PointAndFigure.png To make a Point-and-Figure diagram and use technical analysis to take advantage of chart trading, you can follow these steps: Select a reliable charting software that provides Point-and-Figure charting tools. Choose the security you want to analyze and set the time frame. Determine the box size and reversal amount. Box size is the minimum price movement required to draw a new X or O on the chart, while the reversal amount is the number of boxes required to change the direction of the trend. Plot the X\u0027s and O\u0027s on the chart based on the price movements. X\u0027s represent an uptrend, and O\u0027s represent a downtrend. Look for patterns on the chart, such as double tops or bottoms, trendlines, and support and resistance levels. Use technical analysis indicators, such as moving averages or relative strength index (RSI), to confirm the trend direction and identify potential entry and exit points. Determine your trading strategy based on the analysis, and set your stop-loss and take-profit levels accordingly. 👉 It\u0027s important to remember that Point-and-Figure charts are just one tool among many in technical analysis, and that no single tool or chart can guarantee success in trading. It\u0027s also important to practice and refine your analysis skills through continuous learning and experience. 💥At this point, we should have started learning how to create a point and figure diagram on a chart. The equipment required to create a diagram is a graph book, which has a square grid that was used during childhood to graph. Although some people may say that computers and diagramming programs such as Points and Figures are available, why bother learning it? Is it obsolete? In our opinion, understanding the basic principles would not cause any harm. First, gain knowledge and expertise, and then use a computer to help create a diagram. However, for those who are more proficient and believe that computer-generated diagrams can sometimes be challenging to read because the image is too small, there may be a way to solve this problem. 💥The first step in creating a diagram is setting the size of the box (box size) such that each box is equal to the amount of price change or spread in stock trading. For instance, if the stock price fluctuates between 5 and 80 euros, the box size will be 5 euros, which is equal to the change in stock price when trading. 💥However, in practice, the box size is set at the trader\u0027s discretion. To analyze data effectively, it can be used as a guide. It should be noted that the box size affects the sensitivity of the change in price direction. If the value is less, the change in direction will be faster. Therefore, the size of the box should be related to the range used in the chart for trading. For instance, if one wants to study long-term price movements, the box size should be larger than usual. 💥The second step is to understand how to enter prices into the table and the rules that must be followed to create a diagram. This requires knowledge of the rules along the way. Consider the following example: 💥Suppose the stock price is currently 15 euros. We record the value of 15 euros using the X or O symbols, not as a numerical value. If the price moves up, the X symbol is used, and if it moves down, the O symbol is used. For instance, if the price moves up to the highest price level of 40 euros and closes at that level, we will have 6 X symbols because each box used to record the X value has a box size of 5 euros. When the maximum price changes to 30 euros, six X\u0027s are added. 💥On the other hand, if the stock price falls from the price level of 35 euros to the lowest price of 10 euros and closes at that level, the O symbol will be used to record the value. 💥Once we understand which symbols are used in which cases, we can explain the case when the stock starts with the X row first, assuming that the price is still rising the next day with a maximum price of 65 euros. In this case, we need to record prices up to the price level of 65 euros. However, if the highest price on the third day does not exceed the highest price (65), we need to consider whether the Day 3 Low is below the High (65) for at least three price movements. If the minimum price of 55 euros is not less than three periods of price change, worth 10 euros, we don\u0027t record anything. On the other hand, if the lowest price on the third day is 15 euros, which is below 65 euros and down more than 15 euros, we start recording the O symbol in the column to the right of the X column starting. point-and-figure-4.jpg 💥You may be wondering why 15 euros is used as a criterion and how the X symbol is changed to an O. Well, it\u0027s actually a popular rule called Three-box reversal, which is derived from three times the box size. In this case, the box size is equal to 5 euros, so the Three-box reversal is equal to 15 euros. However, this rule can be changed to any value other than three times the box size, as long as it is looked at carefully. If the rule is changed, does the resulting diagram have any significance in terms of price movements? Can it provide a reliable buy or sell signal? If it works better, no one would forbid it! 💥Another thing to note is that in point and figure charting, the closing price is not taken into account. Only the highest and lowest prices are recorded. If on day 1, the column has an O instead of an X, it is because the price dropped from 60 euros to 45 euros. If the lowest price on day 2 is 15 euros, we continue to record the symbol O down to 15 euros. However, if the lowest price on day 3 is also 15 euros, which is not lower than the lowest price (15), we need to consider if the highest price is a Three-box reversal. If the highest price on the 3rd day is 20 euros (still lower than 15 euros), there\u0027s nothing to do. But if the highest price on the 3rd day is 70 euros, then the reversal starts. We record the symbol X in the column immediately to the right of column O and start in the address field higher than that of the symbol O (as shown in the example picture). 💥However, sometimes the price dynamics are quite wide. For example, the high on the 10th day may be higher than the high currently being recorded on day 9. But if we follow the rules and look at the lowest price on day 10, it may be worth more than a Three-box reversal. In this case, we continue to record the X symbol until the maximum achieved on the 10th day, regardless of the resulting minimum. However, doing so may ignore what could be a significant reversal signal. So we can either move the column to the right to save the O symbol or use the fish method to go down instead of using the O signal as a warning of a significant reversal during the day.
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