Trader Challenge
How well do you know Point & Figure Charting?
Traders may think that a point & figure chart is only useful to estimate targets of future price moves. While projecting likely targets is a valuable feature of P&F charting, it’s not all that they tell the savvy trader – not by a long shot! A P&F Chart can also tell you what the market is about to do next, if you know what to look for.
Here is a trader challenge for you – assess the chart and choose the correct answer.
The chart shows a popular US stock. (You can expand the chart by clicking on it). Based on this P&F chart, this stock is:
- About to fall another 5 points and then goes into a protracted trading range
- About to have a rally which runs over 80 points
- About to have a breath-taking, 50-point drop?
- Starting a protracted, sideways trading range that lasts months
Please post your answer by clicking below. We will post the right answer by end of Sunday.
Price looks like it hit support and will move higher. There’s also appears to be more buyers than sellers in this area giving additional hint that price will move higher.
Bill
Good observations. Just because we are at support does not mean the market will rally. It all depends on supply and demand at that point, and, as you observe, there are more buyers than sellers in this area (though still lots of sellers, too).
2.About to have a rally which runs over 80 points
Rally
2 About to have a rally which runs over 80 points
Potential double bottom forming. At the recent low where the 2 O’s are, there was a lack of follow through to the downside meaning buyers are coming in and buying the lows. If prices were to fall further that was the opportunity to do so but it didn’t because buyers are appearing. Prices may test the lows again then move up.
Hi Wayne,
Thanks for your reply. It’s a very good start.
Lack of follow through at a potential support level is important, but for this to hold, we need to see strength in the background, which exists here. One of the difficulties traders have is that they see an indication such as support or a bullish candlestick, etc., and think this is a place to go long. Then, they get run over for a loss. In this method, we are always looking for a story of demand or supply. A single point such as support adds to the story, but isn’t sufficient on its own for a trader to commit to a trade. As an example, in the middle of the chart support exists and there appears to be no follow through, then the market continues down. There are several indications of demand at the end of this chart, and all add up to a story of strength and that is what led to an 80-point rally. We will show this kind of depth in our analysis of P&F charts in the webinar starting tomorrow. It is what separates traders.
1) About to have a rally which runs over 80 points. The 14th last column, looks like a STRONG Automatic Rally to the previous high, price then comes down SLOWLY to test the lows again. Price is at 60 and if you draw a horizontal line, it has found support at least three times at that level. I checked the Daily chart of S&P 500 and Nasdaq, both are on an uptrend. This could be a Santa Claus rally, just my two cents
Good analysis, Linda. P&F charts often give us clear indications of demand and supply as you detail in your response. This stock has run over 80 points form the 55 low. All the way up, it has shown excellent P&F principles, giving the trader a great edge when it comes to understanding support and resistance, strength and weakness, mark-up and mark-down, accumulation and distribution, etc. We will go over all these principles and more in the webinar that starts on Tuesday. Nice work!
Price made a new low for it’s time interval, but not a newer low. The turn suggests, IMO, that a bottom may be in and it is a low risk trade to go long and: “About to have a rally which runs over 80 points” is my choice.