Point & Figure Chart

Most stock charts track price v. time. Time gets shown on the x-axis...prices are charted on the y-axis.

However, while that's the standard representation, it's not the only way to pictorially represent a stock's activity. A point and figure chart represents another option.

The point and figure chart looks like an elaborate game of tic-tac-toe. It's made up of X's and O's arranged in columns. Each "X" represents a positive move. Each "O" represents a negative move. Each "X" and "O" is assigned a unit amount. Say that amount is $2. A stock that rises $6 on a particular day would be represented by three vertical Xs. If the stock moves only $1.25 on a session, that day is ignored completely. A stock that drops $4 would get two Os for the day. Only closing prices count for charting purposes (most of the time...traders have different styles).

So a stock that rises $6 on one day, climbs $1.25 on the next day, and falls $4 on a third day would appear on the chart as one column of three Xs, followed by another column of two Os (the middle day gets left out because it didn't move enough to get charted).

The purpose of the point and figure chart is to highlight directional patterns and more easily spot trends.