We briefly discussed the history of the point and figure method in Chapter 3, “History of Technical Analysis.” Unfortunately, there are only a few written references to the method—mostly books and pamphlets. Academic references are few and generally unfavorably disposed, being still caught in the old finance theory cult and not understanding how point and figure is used by professionals.

A pamphlet titled The Game in Wall Street, anonymously written by “Hoyle” in 1898, contains a method for recording the fluctuations in price for a security as they occur. Charles Dow, in 1901, mentioned a “book method” of plotting stock prices as they occur on the ticker tape, which is often referred to as the market book. Studies in Tape Reading and the Application to Speculation, written in 1910 by Richard Wyckoff under the name “Rollo,” contains an example of a “figure chart.” These charts were created by plotting the numbers, or figures, as they occurred in vertical columns, with new columns created upon price reversals.

The first book dedicated to point and figure charting appears to be The Point and Figure Method of Anticipating Stock Price Movements by Victor DeVilliers in 1933. DeVilliers describes a chart with prices in each box, referred to as the figure method, and a chart constructed with Xs in each box and figures (5 or 0) in the prices rows that were multiples of 5 and 10, referred to as the point method. DeVilliers acknowledges that figure charts have an advantage in that the analyst can see the repetition of the figures at a particular level more easily; however, he consider the figure charts to be “old fashioned” and states that he prefers the point method.

Later in the same year, DeVilliers wrote a more comprehensive book with Owen Taylor constructing all charts using the point method. He summed up the advantages of using charts: they “dispense with statistics, fundamentals, values—real, absent, or presumed, news—past, present, and future, the necessity for impulsive action, decisions based on conjecture, compulsion to interpret or determine the effect before the cause, and the confusion of mental processes in the task of prematurely anticipating or discounting coming events.” DeVilliers sounds like a true technician. Indeed, some analysts refer to the old method of one-box reversal as the DeVilliers method.

Likewise, Wyckoffs Stock Market Techniques No. 2, written in 1934, shows the point method exclusively, a complete change from Wyckoff s earlier works. Thus, it appears that by the mid 1930s, the figure method had been completely replaced by the point method.

The next pamphlet to describe these one-point reversal charts was Study Helps in Point and Figure Technique by Alexander Wheelan (1954). It is still in print, and for anyone interested in the original method of analysis, it is a gem. Wheelan’s instructional pamphlet takes the form of a lesson plan and includes many practice exercises, chart paper, and subsequent commentary. It provides the best summary of the chart patterns used in the original one-box method. Wheelan suggests that the student of point and figure keep an active chart on some commodity future because futures trading is so fast acting that chart patterns unfold rapidly and give rapid feedback of pattern analysis. He also suggests that two students work alongside each other because “points that are obscure to one may be clear to the other, and the opportunity to exchange ideas will greatly hasten the mastery of this analytical technique” (p. 4). His advice is still valid today.

In the 1960s, Dines, Andrews, Granville, and several others each published one-box reversal chart services. The advent of the easier three-box reversal and the beginning of computer plotting gradually put these services out of business. Until recently, several brokerage firms still kept one-box reversal charts by hand, but these firms are getting fewer and fewer because the computer has taken the job of plotting continuous data very well.

Some specialists, market makers, and short-term floor traders keep a card for recording intraday price changes, which at one time the exchanges provided, for short-term trading and gauging price strength and weakness. This method is also dying out, however, because these trading professions gradually are being phased out as electronic trading takes over their functions on the trading floors. “Upstairs” traders can rely on software that is designed to plot one-box charts, but they must be careful that the data flow is continuous and not just the high and low of a time bar.

The newer method of point and figure, the three-point reversal method, is not a true point and figure method because it does not rely on a continuous data stream. In some cases, only the closing prices are used, but more often the high and low are interpreted as representing price flow during the trading day.

Abe Cohen described the three-point reversal method in a privately published book titled Stock Market Timing in 1947. This book was later retitled The Chartcraft Method of Point & Figure and then retitled again as How to Use the Three Point Reversal Method of Point and Figure Stock Market Trading. In 1948, Cohen began the Chartcraft Weekly Service, which used three-box reversal charts to keep subscribers up to date on the most active stocks traded at that time. The service has since been sold to StockCube Ltd of Great Britain and is on the Web under the address www.investorsintelligence.com.

In 1965, Professor Robert Earl Davis of Purdue University compiled a widely quoted performance study on the eight basic three-point patterns. He examined the eight basic three-box reversal patterns for 1,100 equities between 1954 and 1964. We refer to his study later in looking at the effectiveness of this method. More recently, Dr. Carroll Aby (1996) and Thomas Dorsey (2001) have written more complete books that bring the three-box method up to date. The influence of these pioneers in the three-point method has been so successful that many analysts are unaware of the original more accurate but less definite one-point method.

Excellent compilations and descriptions of the point and figure method are available in Zieg and Kaufman (1975) and Murphy (1999). The performance statistics in Zieg and Kaufman are from Davis (1965). Academic literature is limited to German publications (Hauschild and Winkelman, 1985; Stottner, 1990). Also, a working paper by Professor John Anderson of Queensland University of Technology presents a study of three-point patterns on the S&P 500 futures market from 1990 to 1998. Finally, the most recent and comprehensive book on the point and figure method is Jeremy du Plessis’s (2012) The Definitive Guide to Point and Figure: A Comprehensive Guide to the Theory and Practical Use of the Point and Figure Charting Method, 2nd edition.

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