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P&F Price Objectives

Price Objectives can be formulated from classic P&F patterns and basic price movements.
Chartists can also compute Price Objectives using the Vertical or Horizontal Count
Methods.

Breakout & Reversal Method. This article details the methodology for Price Objectives
based on the Breakout and Reversal Method.

Horizontal Count Method. The width of the P&F pattern is often central to its potency. The
wider the pattern, the more important the break. This article shows how to compute a Price
Objective using that width.

Vertical Count Method. Sometimes strength begets strength as a strong move (long
column) can signal the start of an extended move. In this case, chartists can use the column
height to obtain a Price Objective.

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P&F Price Objectives:

Breakout and Reversal Method
StockCharts automates Point & Figure price objectives using the Breakout Method and the
Reversal Method. Both are based on the vertical length (height) of a Measure Column. The
longer the Measure Column, the higher or lower the price objective. The column
identification depends on the method—Breakout or Reversal. We'll show you how to find
the Measure Column, calculate the length of the price move, and determine the Price
Objective.

Important: P&F Price Objectives are upside and downside price targets that stem from a P&F
buy or sell signal. These price objectives should not be used as the sole reason for buying or
selling a security; they are general guidelines on what to expect based on the strength of the
initial price move. The price objective represents the extreme of the range. Some securities
reach their price objective, while others reverse before doing so. A lot can change after a given
signal. You should continually monitor the technical situation for signs that validate or
invalidate the Price Objective.

Note that different scaling methods can affect the Price Objectives. Most of the examples
below are with traditional scaling, which is a half point per box below 20, one point between
20 and 100, two points between 100 and 200, and four points between 200 and 400. Price
objectives can change when using dynamic ATR scaling and percentage scaling.

If you're looking to calculate your price objectives, you may want to try “user-defined”
scaling to ensure a uniform box size. This will make calculations and objectives easier to
ascertain. Also, remember these price objectives are not “hard levels”. Instead, they are
“soft areas” that you can use as a broad guideline. Another point to note—the chart header
shows the extreme levels of the range.

Basic P&F Signals

The Breakout and Reversal Methods don't take into account classic P&F patterns, such as
Triple Top Breakouts, Triple Bottom Breakdowns, and High-Pole Reversals. These patterns

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may be present, but they do not figure into the calculations. Instead of these patterns, the
Breakout and Reversal Methods use basic P&F buy and sell signals.

A basic P&F buy signal is a Double Top Breakout, which occurs when an X-Column exceeds
the high of the prior X-Column. Because X-Columns represent rising prices, a P&F buy
signal is essentially a higher high and higher highs are present in uptrends.

A basic P&F sell signal is a Double Bottom Breakdown, which occurs when an O-Column
exceeds the low of the prior O-Column. Because O-Columns represent falling prices, a P&F
sell signal is essentially a lower low and lower lows are present in downtrends.

The chart below shows some basic P&F signals highlighted in green (buy) or red (sell). These
are the most prolific P&F signals, so expect to see a lot of them on any given chart. Only a
few of these signals are highlighted on the BBY chart below.

Basic P&F signals.

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The blue arrow highlights the current signal, which is a basic P&F buy signal. There is always
a current, or active, signal in play on a P&F chart, which means there is either an active P&F
buy signal or an active P&F sell signal in play. It is one or the other, not both.

Breakout Method: Bullish

There are four steps to finding a Bullish Price Objective with the Breakout Method. Before
starting, select Breakout as the Price Objective method, and ensure the active signal is a
P&F buy signal. This means a Bullish Price Objective will be visible in the chart's upper left
corner.

1. Working from right to left on the chart, find the most recent P&F sell signal (Double
Bottom Breakdown). It is necessary to identify the column that reversed this P&F sell
signal with a P&F buy signal.

2. Work to the right of this P&F sell signal and find the next P&F buy signal (Double Top
Breakout). The column that produces this P&F buy signal is key because it's strong
enough to reverse the P&F sell signal. It is now the Measure Column. This Measure
Column might not have produced the most recent P&F buy signal on the chart. It's the
one that reversed the prior P&F sell signal.

3. Calculate the height of the Measure Column and multiply it by the box reversal amount.
There are two possible methods to calculate the height. In most cases, you subtract the
low from the high of the column (65 - 60 = 5) and multiply by the box reversal amount
(usually three for a 3-box reversal). This is usually best when the box sizes differ, which
can occur at different price levels when using dynamic ATR scaling or Percentage
scaling. If the box size is equal, it's best to use the other method—count the number of
filled boxes in the Measure Column, multiply by the box size by the box reversal amount
(typically three).

4. Add the value to the low of the column just before the Measure Column. Because the
Measure Column forms with an X-Column that produced a P&F buy signal, the column
immediately to the left will be an O-Column.

The chart below shows Citrix (CTXS) with a Bullish Price Objective of 74 (green ovals in the
upper left and the right scale). That you see a Bullish Price Objective tells you that the
active signal is a P&F buy. Now, you can look for the most recent sell signal (red arrow in
January).

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Calculating Bullish Price Objective.

Working to the right of this sell signal, the next buy signal was triggered in February (red 2
on the breakout column). This column reversed the P&F sell signal and became the Measure
Column. For height, the Measure Column is five boxes (X's) and each box is 1 (5 x 1 = 5).
Alternatively, the high of the column is at 65, and the low is at 60 (65 - 60 = 5). The height is
multiplied by the reversal (5 x 3 = 15) and this value is added to the low of the prior O-
Column for a Bullish Price Objective (59 + 15 = 74).

The Citrix example shows a fixed Measure Column because there was a three-box reversal
to lock in column height. Despite two falling O-Columns and small declines, the buy signal
and Bullish Price Objective remain in force until countered with a P&F sell signal.

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The Bullish Price Objective is tentative when the Measure Column is not yet fixed and
subject to change. The chart below shows General Motors (GM) with a “tentative” Bullish
Price Objective of 48 (upper left), which is the extreme of the range. (Note: this Price
Objective is not shown in the chart below because it is off the scale.)

The Bullish Price Objective is tentative because the Measure Column is not yet fixed and is
subject to change if prices extend higher. A move above 39 would warrant another X and
increase column height, which would, in turn, increase the Bullish Price Objective. This
column will not be fixed until a three-box reversal with an O-Column fills three boxes to the
downside. Such a move would not, however, negate the P&F buy signal and the Bullish Price
Objective remains valid until a P&F sell signal.

A tentative Bullish Price Objective.

Breakout Method: Bearish

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There are four steps to finding a Bearish Price Objective with the Breakout Method. Before
starting, ensure that Breakout is selected as the Price Objective method and the active
signal is a P&F sell signal. This means there will be a Bearish Price Objective visible in the
upper left corner of the chart.

1. Working from right to left, find the most recent P&F buy signal. This allows you to find
the column that reversed the P&F buy signal with a P&F sell signal.

2. Work to the right of this P&F buy signal and find the next P&F sell signal. The column
that produces this P&F sell signal is important because it is strong enough to reverse
the P&F buy signal. It is now the Measure Column. Keep in mind that this Measure
Column might not be the one that produced the most recent P&F sell signal. It is simply
the one that reversed the last P&F buy signal.
3. Calculate the height of the Measure Column and multiply it by 2/3 of the box reversal
amount. There are two methods to calculate column height. First, you can subtract the
column high from the column low. Second, you can count the filled boxes and multiply
by the box size. Then multiply the column height by 2/3 of the box reversal amount,
typically 3 (3-box reversal). Using 2/3 for bearish counts is advocated by A.W. Cohen, a
pioneer in P&F charting, and Tom Dorsey, author of Point & Figure Charting .
4. Subtract this total from the high of the column just before the Measure Column.
Because the Measure Column forms with an O-Column that produced a P&F sell signal,
the column immediately to the left will be an X-Column.

The chart below shows an active P&F sell signal and a Bearish Price Objective. The most
recent P&F buy signal occurred in December 2014 (red C) and a P&F sell signal followed
with the long O-Column in January 2015. This O-Column became fixed after the counter-
trend bounce with the subsequent X-Column (red 2). This means the height of the Measure
Column remains fixed, and the Bearish Price Objective will not change until a P&F buy
signal negates it. The column extends 10 boxes, each box is 1, and the box reversal amount
is 3 (10 x 1 x 3 = 30). You can also subtract the high from the low (91 - 81 = 10) and multiply
by three. Take 2/3 of the total and subtract this from the high of the X-Column just before
the Measure Column (30 x 2/3 = 20 and 91 - 20 = 71).

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Example of how to calculate a Bearish Price Objective.

The chart below shows Garmin (GRMN) with an active P&F sell signal and a tentative
Bearish Price Objective because the height of the Measure Column is not yet fixed. In other
words, the measuring column could still extend lower and this would affect the Bearish
Price Objective. The Measure Column will become fixed when there is a 3-box reversal and
rising X-Column that fills three boxes. Even with this counter-trend move, the Bearish Price
Objective will remain valid until there is a P&F buy signal.

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Example of a tentative Bearish Price Objective in a P&F chart.

Reversal Method: Bullish

There are three steps to finding a Bullish Price Objective with the Reversal Method. Before
starting, make sure Reversal is selected as the Price Objective method and the active signal
is a P&F buy signal, which means there will be a Bullish Price Objective visible in the upper
left corner of the chart.

1. Working from right to left on the chart, find the most recent P&F sell signal. The X-
Column next to the sell signal column represents the first bounce after the sell signal;
this column then becomes the Measure Column.

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2. Calculate the height of the Measure Column and multiply it by the box reversal amount.
3. Add this value to the low of the column just before the Measure Column, which will be
the column that produced the most recent P&F sell signal.

The chart below shows Mosaic (MOS) with a Bullish Price Objective at 64 using the
Reversal Method. This means the active signal is a P&F buy signal. To calculate this Price
Objective, find the sell signal before this buy signal. The column next to the sell signal
column becomes the Measure Column, and its height is eight. Multiply this number by the
box reversal amount (8 x 3 = 24) and add the value to the low of the column before the
Measure Column. The Bullish Price Objective is 64 (40 = 24 = 64).

Bullish Reversal method for calculating Price Objectives in a P&F chart.

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The Reversal Method is also subject to “tentative” Bullish Price Objectives when the
Measure Column is not yet fixed. This occurs when the X-column to the right of the sell
signal triggers a P&F buy signal.

The chart above shows LyondellBasell Industries (LYB) triggering a P&F sell signal with an
O-column in March, reversing with an X-column, and triggering a P&F buy signal in April
(red 4). This column extends to 94; should prices move higher, another X will be drawn,
which would affect the Bullish Price Objective. The Measure Column will not become fixed
until there is a three-box reversal and a decline with an O-Column. Such a reversal would
not negate the P&F buy signal, but it would fix the height of the Measure Column, and the
Bullish Price Objective would remain valid until countered with a P&F sell signal.

P&F chart from [Link] showing a tentative bullish reversal price objective
Example of a tentative Bullish Reversal price objective.

Reversal Method: Bearish

There are three steps to finding a Bearish Price Objective with the Reversal Method. Before
starting, ensure the active signal is a P&F sell signal, and a Bearish Price Objective is visible
in the upper left corner of the chart.

1. Working from right to left on the chart, find the most recent P&F buy signal. The O-
Column next to this buy signal represents the first decline after the buy signal; this
column then becomes the Measure Column.
2. Calculate the height of the Measure Column and multiply it by 2/3 of the box reversal
amount.

3. Subtract this total from the high of the column just before the Measure Column, which
will be the column that produced the most recent P&F buy signal.

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Bearish Price Objectives with the Reversal Methods are “tentative” if the height of the
Measure Column is subject to change. This usually occurs when a P&F sell signal
immediately follows a P&F buy signal. The O-Column generating the P&F sell signal
becomes the measure column, and its height is not fixed until there is a three-box reversal
(X-Column with three boxes).

The chart below shows KLA-Tencor (KLAC) with an active P&F sell signal and a Bearish
Price Objective on the chart. Working from right to left on the chart, the first P&F buy signal
shows an X-column with a high at 70. The next O-column is the Measure Column; its height
is 10, which is multiplied by the box reversal amount and 2/3 (10 x 3 x 2/3 = 20). This

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amount is subtracted from the high of the buy signal column for a downside Price Objective
(70 - 20 = 50).

The chart below shows Hewlett Packard (HPQ) with a buy signal in November as the X-
column moved above the prior X-column. This buy signal was immediately reversed with
the next O-column and a “tentative” Bearish Price Objective was set. The O-column is not
yet fixed because a decline below 31 would warrant another O and an adjustment to the
Bearish Price Objective.

A P&F chart from [Link] showing an example of a tentative bearish price

objective
An example of a tentative Bearish Price Objective.

Met Price Objectives

Once a stock reaches its price objective, MET! appears next to the Price Objective in the
upper left corner of the chart. After meeting this objective, a new price objective will not
appear until the stock generates a new bullish or bearish setup.

The first chart below shows Amazon with a Bullish Price Objective (tentative) of 375, which
fits in the 372 box because each box is four points and this box covers 372, 373, 374 and
375. The second chart shows Amazon with Bullish Price Objective MET!.

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Tentative Bullish Price Objective

The Bullish Price Objective was met as indicated by the MET! displayed on the chart.

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The Takeaway
Price Objectives provide chartists with a general price target based on the vertical length of
the Measure Column. The longer the Measure Column, the higher or lower the Price
Objective. Price Objectives based on the Reversal Method, Breakout Method, or any other
method should be taken with a grain of salt. Consider these targets as broad guidelines.
Securities will not always reach their targets; some will even reverse course and trigger
conflicting P&F signals before reaching their target. A P&F signal and a target are simply the
starting point for analysis. Conditions can change, so chartists must regularly monitor the
unfolding chart formation for evidence that would invalidate their original premise.
Employing other technical analysis tools to confirm or refute a premise is also important.
For example, chartists can apply basic trend analysis on a bar chart or use bar chart-based
indicators to confirm the findings on the P&F chart.

Activating Price Objectives

StockCharts users can access P&F Price Objectives by selecting Reversal or Breakout in the
Price Objective drop-down box. This can be found just below the chart on the right side.
After changing the method and selecting update, the Price Objective for the selected
method will appear on the chart. See our P&F support article for details on other charting
options.

Click here for a live graphical P&F chart of the S&P 500 .

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Activating price objectives in SharpCharts

Suggested Scans

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P&F Pattern signals can be found at the bottom of the Predefined Scans Page , which
shows signals for more than 15 P&F patterns.

Further Study
Thomas Dorsey's Point & Figure Charting examines the basic ideas and key patterns of
P&F charts. Dorsey keeps his analysis straightforward; as a relative strength disciple, he
devotes a complete chapter to relative strength concepts using P&F charts. These concepts
are tied in with market indicators and sector rotation tools to provide investors with all
they need to construct a portfolio. Additionally, Dorsey incorporates lessons on how to use
P&F charts with ETFs.

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P&F Price Objectives: Horizontal Counts

Using Horizontal Counts for P&F Price

Objectives
Point & Figure (P&F) price objectives can be determined using the horizontal count method
with a consolidation or congestion pattern. This counting method is based on the width of
the congestion pattern. The wider the congestion pattern, the higher the price objective
upon the pattern break.

A congestion pattern ends with a break above the pattern high or below the pattern low.
Chartists can then use a simple formula to estimate a price Extension and apply this
extension to the consolidation high or low for a Price Objective. Keep in mind that these
Price Objectives are rough estimates based on P&F charting techniques. There is no
guarantee that prices will reach the objective.

Congestion Patterns
A congestion pattern or reversal must form before considering the horizontal count. Some
Point & Figure patterns qualify as congestion patterns. These include Triple Top Breakouts
and Triple Bottom Breakdowns, Spread Triple Top Breakouts and Spread Triple Bottom
Breakdowns as well as Quadruple Top Breakouts and Quadruple Bottom Breakdowns.
These classic P&F patterns clearly mark a congestion period that ends with a subsequent
support or resistance break.

The chart below shows JP Morgan with a Quadruple Top Breakout in the upper right-hand
corner. This Quadruple Top marked a congestion pattern as prices moved sideways from
June (red 6) to December (red C). Notice that three reaction highs established a clear
resistance level broken with the current column of X's. There are some other classic
congestions and breaks on the chart.

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A Quadruple Top marked a congestion pattern in this P&F chart.

The chart below shows Equinix (EQIX) with a pair of Spread Triple Bottom Breakdowns.
This is just a Triple Bottom with a couple extra columns that spread the pattern a little
wider. On the right-hand side, the red box marks the congestion pattern. Notice how the
stock moved to the 93 box and traded sideways in January–February (red 2). One month
ends, and the other starts with the red numbers. For example, January ends and February
starts at the red number 2. EQIX broke Spread Triple Bottom support with a move below
the prior two columns of O's.

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Spread Triple Bottom Breakdowns mark a congestion area.

As noted above, the congestion formation does not have to be a specific P&F pattern. There
needs to be a definable congestion pattern that is at least five columns wide and a column
that breaks this congestion. A clear support or resistance level should also be visible. The
congestion ends when a column breaks above resistance or below support. Once broken,
the width of the congestion is fixed and chartists can start the counting process.

Classic Patterns
The next step is to count the number of columns in the congestion pattern, i.e., the width.
Counting is straightforward with the classic P&F patterns mentioned above because their
width is defined. A Triple Top Breakout, for example, consists of five columns—three
columns of X's and two columns of O's. The first two X columns establish Triple Top
resistance, and the intervening O columns represent the two pullbacks. The third column of
X's forges the breakout. Once the breakout occurs, multiply the pattern width by the box
size and the reversal amount to estimate the price extension. This extension is then added
to the low of the pattern for a target.

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The chart below shows Chevron (CVX) with a Spread Triple Bottom Breakdown in February
2009. The red 2 signals the start of February, and the red 3 signals the end of February
(beginning of March). The width of this pattern is seven columns, which can be counted
from the green support line. The pattern is complete after the support break because the
width cannot change after this congestion break. The width (7) is multiplied by the box size
(1) and the reversal amount (3) for a projected Extension (7 x 1 x 3 = 21). This Extension is
subtracted from the high of the pattern for a bearish Price Objective (69 - 21 = 48).

Measuring pattern width after a spread Triple Bottom Breakdown.

As with the vertical count, some schools of thought only use 2/3 of the projected Extension
for bearish Price Objectives. A.W. Cohen, a pioneer in P&F charting, advocated a 2/3
Extension for bearish counts. This probably has something to do with the bullish nature of
stocks. His 1984 book, How to Use The 3-point Reversal Method of Point & Figure, was
written with stock market trading in mind.

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There is also a Triple Top Breakout on the Chevron chart. This pattern represents a
consolidation after a sharp advance. The width of the pattern (5) is multiplied by the box
size (1) and the reversal amount (3) for an Extension estimate (5 x 1 x 3 = 15). This amount is
then added to the low of the column for a bullish Price Objective (80 + 15 = 95).

Extended Congestions
While counting the width of a classic pre-defined P&F pattern is straightforward, counting
the width of an extended congestion pattern is a bit different. Counts for extended
congestions include the column leading in, the actual congestion pattern, and a column
leading out. Also, note that some P&F practitioners include the columns leading in with the
classic reversal patterns shown in the prior section. This means a classic Triple Top or
Bottom would have one more column added to the count, thus making the estimated
Extension a little larger.

Four pattern types qualify as extended congestions: two are reversal patterns, and two are
continuation patterns.

1. A bullish reversal forms with a decline, congestion base, and an upside reversal
breakout.
2. A bearish reversal that forms with an advance, congestion top, and reversal breakdown.
3. A bullish continuation that forms with an advance, congestion pattern, and
continuation breakout to the upside.

4. A bearish continuation forms with a decline, congestion pattern, and continuation

break to the downside.

For the two reversal patterns, the column leading into the congestion and the column
leading out will be in different directions. A bullish reversal forms with a column of O's
leading in (decline), a congestion base, and a column of X's leading out that breaks
congestion resistance.

The chart below shows Coca-Cola (KO) with a bullish reversal pattern in red. The long
column of O's establishes the downtrend. The congestion extends for 16 columns, ending
with the breakout column leading out. All told, the width is 18 columns, which is
exceptionally long. Using the formula above, the Price Objective would be 90 (18 x 1 x 3 =

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54, 36 + 54 = 90). Again, take these price objectives with a grain of salt and employ other
aspects of technical analysis for confirmation. The KO chart also shows a bearish
continuation congestion pattern (blue).

Bullish reversal pattern and a bearish continuation congestion pattern

A bearish reversal forms with a column of X's leading in (advance), a congestion top and a
column of O's leading out that breaks congestion support. The State Street (STT) chart
below shows a column of X's leading in and forming a new high above 55.

A congestion pattern formed as the stock traded flat for six columns. Congestion support
was broken when the column of O's exited the pattern to fix the width at eight (one column
leading in, six for the congestion, and one column leading out). As noted above, some
investors use 2/3 of the reversal amount for bearish price Extensions. A full Extension
targets a move to 31. A 2/3 Extension targets a move to 39.

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An example of a congestion pattern in a P&F chart.

The lead-in and lead-out columns for continuation patterns are in the same direction. A
bullish continuation consists of an advance with a column of X's leading in, a congestion,
and an upside breakout to signal a continuation of the prior advance. A bearish continuation
consists of a decline with a column of O's leading in, a congestion, and a continuation lower
with a congestion support break.

The chart below shows TimeWarner (TWX) with a bearish and bullish continuation
congestion. The bearish pattern formed after a long O's column broke below the prior lows.
The stock traded flat for five columns and then broke congestion support to signal a
continuation lower. Two extensions were calculated, one based on the full extension and
one based on a 2/3 extension.

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Example of a chart with bearish and bullish continuation congestion patterns.

Signal Frequency
The examples above are based on daily price data with standard P&F box sizes. Securities
priced from 5.01 to 20 have 50-cent boxes, and securities priced from 20.01 to 100 have $1
boxes. These daily P&F charts provide a fairly long-term picture, as most extend back to
2009. If you prefer looking for more signals, try smaller box sizes and using intraday price
data, such as 60-minute data. A 20–50 cent box size with 60-minute data works well for the
three to six months (see chart below).

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Assessing Risk
Establishing a Price Objective only covers the reward part of the risk-reward equation.
Chartists should also study the chart to assess risk. For bullish patterns and upside price
objectives, a move below support or the pattern low would negate a breakout. The box
below the pattern low often marks the worst-case level for a pattern failure.

Similarly, a Double Bottom Breakdown or a contradictory P&F pattern would argue for a
reassessment. For bearish patterns or downside price objectives, a move above the
resistance or the pattern high would negate a breakdown. The box just above the pattern
high often marks the worst-case level for a pattern failure. Similarly, a Double Top Breakout
or a contradictory P&F pattern would argue for a reassessment. There are sometimes

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indications of potential failure before price hits the worst-case level. Because of this, it's
best to employ other technical analysis techniques to measure risk and monitor the
unfolding trend.

The Bottom Line

Horizontal price objectives provide chartists with a general price target based on the width
of the pattern. This makes sense, as longer congestion patterns mean more energy is stored
for the subsequent break. It is like a smoldering volcano just before it blows.

While the breakout is the most important element for these patterns, nimble players may
be able to anticipate a bullish resolution by buying near support. This would greatly
improve the risk-reward ratio. From a P&F standpoint, however, the pattern is not
confirmed until there is an actual breakout. Once a breakout occurs, very wide patterns can
often produce unrealistic Price Objectives. While a stock can go to zero, most will not even
come close to zero. Therefore, horizontal counts that produce negative Price Objectives are
best ignored.

Similarly, a Price Objective that forecasts a 300% advance should also be taken with a grain
of salt, especially if the stock is not part of the latest bubble. As with all indicators and
techniques, it is important to confirm your findings with complementary technical analysis
tools, such as momentum oscillators and chart patterns.

Further Study
Thomas Dorsey's Point & Figure Charting examines the basic ideas and key patterns of
P&F charts. Dorsey keeps his analysis straightforward; as a relative strength disciple, he
devotes a complete chapter to relative strength concepts using P&F charts. These concepts
are tied in with market indicators and sector rotation tools to provide investors with all
they need to construct a portfolio. Additionally, Dorsey incorporates lessons on how to use
P&F charts with ETFs.

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P&F Price Objectives: Vertical Counts

Point & Figure (P&F) price objectives can be determined using the vertical count method,
which is based on the length of an important column. This can be the column that triggers a
breakout or one that forges an important high or low. Once the column is complete, you can
apply a simple formula to estimate an Extension and then apply this extension to the
column high or low for a Price Objective. These Price Objectives are rough estimates based
on P&F charting techniques. There is no guarantee prices will reach the objective.

Count Column
The first step is to choose the column in which to base the count, which we will call the
Count Column. Because this column forms the basis for an upside or downside target, it
should be of some importance. Namely, this column should signal some type of reversal or
continuation move with an upside or downside breakdown.

Double Top Breakouts and Double Bottom Breakdowns are the most basic P&F signals
required to establish a Count Column. The following signals can also be used to establish
the Count Column.

Bullish Breakouts. Ascending Triple Top, Bear Trap, Bearish Signal Reversal, Bullish
Catapult, Bullish Triangle, Quadruple Top, Spread Triple Top, Triple Top

Bearish Breakdowns. Bearish Catapult, Bearish Triangle, Bull Trap, Bullish Signal Reversal,
Descending Triple Bottom, Quadruple Bottom, Spread Triple Bottom, Triple Bottom

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Chart showing bullish and bearish breakout patterns in a P&F chart.

Count Column Completion

Once you've chosen the Count Column, wait for it to be completed to ensure a fixed or
unchanging count. The number of filled boxes in a column is not fixed until there is a 3-box
reversal. Keep in mind that a column of X's is subject to change until a 3-box reversal forms
with three O's in a new column. Once this column is reversed, the number of boxes is fixed,
and you can set the count in motion.

Similarly, a falling column of Os isn't complete until there is a 3-box reversal with three Xs in
the next column. You can, however, make preliminary Column Counts based on the initial
breakout. Remember, these Price Objectives are subject to change until the Count Column
is fixed with a 3-box reversal.

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An example of a count column that is not yet fixed.

Price Objective
The next step is to count the number of X's or O's in the Count Column. This count is
multiplied by the box size and the reversal amount to define the Extension. For example, a
column of 10 X's on a 1 x 3 P&F chart would yield 30 (10 x 1 x 3 = 30). Remember, a 1 x 3
chart implies 1 point per box and 3 boxes for a reversal.

For bullish breakouts, you would add the projected Extension (30) to the low of the Count
Column to attain an upside target. In the chart below, the fixed Count Column measures 14
boxes. Each box is 0.50, and the reversal amount is 3. The total Extension is 21 (14 x 0.5 x 3
= 21). This amount is added to the low of the column for an upside target.

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P&F chart showing extensions and count columns in a bullish breakout.

For bearish breakdowns, the total is subtracted from the high of the Count Column to
attain a downside target. The chart below shows Computer Sciences with a Triple Bottom
Breakdown to set the Count Column. Notice that this column became fixed at 14 when the
stock rebounded to 47 with a column of X's. The length multiplied by the box size (0.50) and
reversal amount (3) gives us the Extension (21). Subtracting this number from the high of
the Count Column yields a downside Price Objective of 29. As noted in the alternatives
below, Tom Dorsey advocates using 2/3 of the reversal amount for bearish Price Objectives,
which yields a downside target of 36.

P&F chart showing extensions and price objectives for a bearish breakout.

Counting Alternatives
Much has been written on P&F charting over the years. As with Dow Theory, it is unclear
who created P&F charting and the exact rules. As such, there are different interpretations

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involving counting methods, the counting column, the projection point, and the need for
activation.

In his book Point & Figure Charting, Tom Dorsey advocates a smaller multiplier for bearish
Price Objectives. This may be based on the assumption that stocks have an upward bias
over the long term. Dorsey's method multiplies the Count Column by the box size and then
by 2/3 of the reversal amount, which would be 2 for a 3-box reversal chart. The total
Extension is then subtracted from the value of the box at the top of the Count Column.

The above example with Computer Sciences (CSC) shows the 2/3 Extension, which
[Link] uses on bearish vertical counts for Price Objectives.

In his book, The Definitive Guide to Point & Figure, Jeremy du Plessis suggests establishing
an activation point for vertical counts. Once the Count Column is completed, you should
use the high of that column as the activation point for an Upside Extension. A break above
this high activates the count, which makes it valid. Conversely, the low of the Count Column
becomes the activation point for a downside Extension.

du Plessis also suggests that vertical counts can be made from any vertical column that
forges an important high/low or marks the first move from a significant peak/trough. This
could be an exceptionally long column that is not part of a breakout, breakdown, or reversal
pattern. High-pole patterns could also be considered significant columns for a vertical
count.

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Different methods to count columns in a P&F chart.

A.W. Cohen, an early pioneer in P&F charting, advocated starting a count from the high or
low of the pattern. Tom Dorsey advocates applying the Extension to the high or low of the
Count Column, which is the method used at [Link]. The difference in these two
techniques is often negligible because the difference between the high/low of the pattern
and the high/low of the Count Column is usually just one box.

Sometimes the box size changes, which requires a counting adjustment. Instead of counting
the number of boxes in a column and multiplying by the box size, chartists can simply
subtract the column high from the column low. This sum can then be multiplied by the
reversal or 2/3 the reversal amount to obtain the Extension estimate.

Combining With Trend Lines

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P&F charts can be displayed with or without trend lines. Rising (blue) trend lines are called
Bullish Support Lines, and falling (red) trend lines are called Bearish Resistance Lines. These
lines provide a quick snapshot of the direction of the underlying trend.

Many traders advocate trading in the direction of the underlying trend. This means taking
bullish signals when the trend is up and prices are above the Bullish Support Line.
Conversely, bearish signals are preferred when the trend is down and prices are below the
Bearish Resistance Line.

The chart below shows Agilent (AA) with these trend lines. Notice how the stock broke the
Bearish Resistance Line and forged a Quadruple Top Breakout with the move above 30 in
the last column of X's. This column is not yet fixed because we have yet to see a 3-box
reversal. Price Objectives are preliminary until the column length is fixed.

P&F chart with trendlines.

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Assessing Risk
Establishing a Price Objective only covers the reward part of the risk-reward equation.
Chartists should also study the chart to assess risk. For bullish patterns and upside price
objectives, a move below support or the pattern low would negate a breakout. The box
below the pattern low often marks the worst-case level for a pattern failure. Similarly, a
Double Bottom Breakdown or a contradictory P&F pattern would argue for a reassessment.
For bearish patterns or downside price objectives, a move above resistance or the pattern
high would negate a breakdown. The box just above the pattern high often marks the worst-
case level for a pattern failure.

Similarly, a Double Top Breakout or a contradictory P&F pattern would argue for a
reassessment. There are sometimes indications of potential failure before price hits the
worst-case level. Chartists should employ other technical analysis techniques to measure
risk and monitor the unfolding trend.

Concluding Thoughts
Price Objectives based on a vertical count, horizontal count, or any other count should
always be taken with a grain of salt. Consider these targets as broad guidelines. Securities
will not always reach their targets; some will even reverse course and trigger conflicting
P&F signals before reaching their target. A P&F signal and a target are simply the starting
point for analysis. Conditions change, and chartists must regularly monitor the unfolding
chart formation for evidence that would invalidate the original premise. Employing other
technical analysis tools to confirm or refute a premise is also important. For example,
chartists can apply basic trend analysis on a bar chart or use bar chart-based indicators to
confirm the findings on the P&F chart.

Further Study
Thomas Dorsey's Point & Figure Charting examines the basic ideas and key patterns of
P&F charts. Dorsey keeps his analysis straightforward; as a relative strength disciple, he

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devotes a complete chapter to relative strength concepts using P&F charts. These concepts
are tied in with market indicators and sector rotation tools to provide investors with all
they need to construct a portfolio. Additionally, Dorsey incorporates lessons on how to use
P&F charts with ETFs.

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