Point and Figure Charting: The Essential Application for Forecasting and Tracking Market Prices Hardcover – Mar 30 2007
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From the Inside Flap
Today's investment industry is filled with a variety of new strategies that can be used to evaluate market price movements, but many of these methods never seem to deliver on what they promise. There is one approach to investment analysis, however, that has proven itself in all types of markets, and it's called Point and Figure Charting.
In the Third Edition of Point and Figure Charting, the world's top Point and Figure charting expert, Tom Dorsey returns to explain how traders and investors alike can use this classic technique-borne out of the irrefutable laws of supply and demand-to identify and capitalize on market trends. Within these pages, Dorsey describes, step-by-step, how to create, maintain, and interpret your own Point and Figure charts with regard to markets, sectors, and individual securities. He then explains how to use these findings to track and forecast market prices and develop an overall investment strategy.
Divided into three comprehensive parts, Point and Figure Charting, Third Edition Skillfully highlights many of the new developments in this field, including:
- How to use Point and Figure charting with exchange-traded funds (ETFs), commodities, mutual funds, and international securities
- How different relative Strength (RS) applications can provide you with great insights into where best to allocate investment dollars
- How the Bullish Percent concept that is applied to the NYSE and OTC can be applied to sectors within the market
- How to construct and manage a portfolio using the Point and Figure method, coupled with solid fundamental analysis.
This book also comes with a companion CD study guide. The CD contains tests and exercises that will not only solidify your understanding of the concepts presented, but also help you apply Point and Figure charting techniques to real world trading situations.
If you're looking for an investment approach that has stood the test of time-during both bull and bear markets-and is easy enough to learn, whether you're eighteen or eighty, then Point and Figure Charting, Third Edition is the book for you. Filled with in-depth insights and expert advice, this practical guide will help you grow your assets in any market.
From the Back Cover
"Everyone who's involved in financial markets must understand Point and Figure charting in order to get the full picture, whatever your view of technical analysis". - Jim Rogers, author of Hot Commodities and Investment Biker
"An invaluable road map for managing risk in the markets. Tom's methodology has given us the discipline and confidence to look around corners for our clients for almost twenty years." - James A. Parish, President and COO, Morgan Keegan & Co., Private Client Group
"Tom Dorsey continues to be one of the foremost authorities on Point and Figure charting. His relative strength analyses are essential for investors and traders alike. Furthermore, I always want to know what his NYSE Bullish Percent Indicators is "saying." - Lawrence G. McMillan, President, McMillan Analysis Corp., www.optionstrategist.com
"Tom Dorsey has done it again... he has taken his 30-plus years of unending devotion, talents, and insights in technical analysis and applied them to Exchange Traded Funds. He begins with the history of ETFs, explains how different they are from mutual funds, and then applies his expertise in Point and Figure charting to help traders and investors time their purchases and sales." - Ralph J. Acampora, CMT, Director of Technical research, Knight Capital
"Reading Tom Dorsey's Point & Figure Charting is the like procuring a road map before you begin a journey. It's a comprehensive look at how to succeed in the markets. This book is not only essential but easy to follow for everyone." - Paulo Pinto, CEO, Dif Broker
"Point and Figure Charting has become a valuable part of my daily trading routine. As an investment professional, it makes perfect sense to use Tom's methods in conjunction with fundamental analysis." - Damion Carufe, Investment ProfessionalSee all Product Description
Most Helpful Customer Reviews on Amazon.com (beta)
For the first time in my life (I'm 73 years old), technical analysis of the stock market makes sense to me. Enlightenment came when I discovered trend following along with Point & Figure (P&F) charting.
I began learning about the stock market in 1953 when I read "How to Buy Stocks" by Louis Engel. After that, I added one or two volumes a year to my collection of books on investing. I faithfully watched Wall $treet Week with Louis Rukeyser throughout the 70s, 80s, and 90s. I was a regular viewer of the CNBC business channel throughout the 90s and into the 21st century. The Wall Street Journal, Barron's Magazine, and Money magazine were my familiar daily, weekly, and monthly companions.
I became a buy-and-hold investor in the early 70s, retiring in 2006 with what seemed to be a solid IRA retirement portfolio. Fundamental analysis was the name of the game. Value investing was my thing. The outlook for my Golden Years looked good to me.
Then my financial world came tumbling down with the awful bear market of 2007-2009. Early in 2009, after half of my net worth was gone, I pulled the plug on buy-and-hold. Enter technical analysis, P&F charting, and trend following. In a few short weeks, I turned my investment philosophy around 180 degrees. I made the transition (metamorphosis?) from long-term investor to short- and intermediate-term trader. Growth of capital plus protection of assets became my new strategy.
I acquired a used copy of the first edition (1995) of "Point & Figure Charting" by Thomas J. Dorsey. This is a practical how-to book on trading. I quickly learned P&F charting fundamentals with emphasis on rising columns of Xs (demand is in control) alternating with falling columns of Os (supply is in control), bullish & bearish trend lines, support & resistance levels, buy & sell chart patterns, bullish & bearish price objectives, risk & reward calculations, relative strength analysis, sector rotation, setting stops, money management, and market timing. Best of all, Dorsey introduced me to market and sector analysis with the power and simplicity of P&F Bullish Percent Indexes. For the first time in my life I have learned how to analyze markets, sectors, and stocks without dependence on the talking heads.
The advantages of P&F Charts are many. They eliminate minor movements by filtering out the meaningless ripples that often make bar charts appear noisy and confusing. They make bullish and bearish trend line recognition a no-brainer, being so obvious that you can't argue with it. P&F charts plainly highlight major support and resistance levels. Buy and sell signals are clear and unambiguous. Bullish and bearish price targets are objectively obtained. Outperformers and underperformers are easily distinguished by means of their relative strength P&F charts. Do you want to outperform the S&P 500 Index? Go for it with your P&F relative strength chart as your guide!
One of the nicest features of Dorsey's book is his presentation of statistical probabilities associated with the various P&F chart patterns. These probabilities came from research done by Professor Robert Earl Davis at Purdue University in the 1960s.
I especially appreciated Dorsey's football game analogy for shedding light on the Bullish Percent Indexes. When the market has the ball (falling column of Os), you make defensive plays. When you have the ball (rising column of Xs), you make offensive plays. Yes, football fans, P&F trading is really that simple.
You will probably want the newest printing of Dorsey's book, now in its 3rd edition (2007). My copy of the 1st edition (1995) is okay for learning P&F fundamentals, but it does not take into account the emergence of such Internet resources as StockCharts dot com and the rise of Exchange Traded Funds (ETFs). The new edition also comes with a CD-ROM containing tests and exercises for mastering P&F charting.
What's really great about P&F charting is the short learning curve. I progressed from mystery to awareness to understanding to mastery within a few days using Dorsey as my guide, proving that old dogs like me can learn new tricks.
Try it. You'll like it.
To cut to the chase, this book does indeed have sound concepts and some interesting applications for PnF. Dorsey offers good solid basics ("you must trust your system & follow it to a T" type stuff). It's worth the read (even at Wiley Trading's typically high prices) mainly because I believe in being exposed to as many viewpoints as possible and because learning how other people set up their systems is generally interesting and occasionally eye opening. However keep the following things in mind:
1) It's overlong (which no doubt this review will become). It weighs in at nearly 400 pages, however the ideas contained within could easily be covered in half that number without losing a single chart. This is a simple book with simple concepts (the author's favorite piece of advise seems to be KISS) and doesn't benefit from the added length.
2) Constantly, and I mean con-stant-ly, referring to Dorsey Wright & Assoc, DWA, visit our website at blah blah blah. Okay I get it... you make your money managing other people's money which requires people learning about your business so that they will bring you more money. However, I bought this book to learn about P&F techniques and strategies, and I won't be handing my cash over to you to manage. End of story. I don't come across too many "shameless plug" books (mainly because I avoid them like the plague) but this one comes darn close.
3) Regularly refers the reader to charts on the DWA website, however the charts on said site are available through paid subscription only (they do offer a free 3 week trial, FWIW).This kinda thing bugs me. I don't have a problem with making money (obviously) nor promotion, however shameless & repetitive promotion using Bait 'n' Switch does perturb. I guess the key is quantity. I'm fine with it happening at the beginning and ending of a book but not when it's used throughout like a cajun cook uses pepper. BTW, if you're interested, stockCharts has excellent PnF charts for (wait for it) free. DWA offers more than just basic PnF charts so YMMV.
4) Freakishly repetitive. Dorsey says the same thing over and over and over and... This of course helps power #1. The repetition is not only the DWA and website stuff, but general (and easily understandable) concepts, advise and whatnot.
5) His examples are excessively long winded and at the end of the day don't do a lot to add to the charts... mainly because the charts are nearly self explanatory! What the examples do serve to do is to show you, dear reader, just how amazingly well DWA manages money and foresees major trouble in the market. Every example is cherry picked to make DWA look (and Dorsey's strategy by extension) flawless. I prefer my books to also offer counter examples or examples where a given technique failed. You won't find that here. The examples also sound eerily close to boasting.
I guess what I was hoping for was "PnF Charting: In Depth". Basically a technical book going through all of the various uses, patterns etc that PnF offers. Something like a version of the info available online but much more in depth and exhaustive. And no I'm not the guy for the job :)
What I got was another trading system, only touching on the specific aspects of that system. The book clearly walks you through every aspect of Dorsey's trading system (using PnF nearly exclusively) and if you're into that you'll love this book. If you just want an exhaustive treatise on everything PnF (as I did) you'll be let down (as I was).
The bottom line is that if you can wade (or as I did, skim) through this tome (and deal with the above points) you will probably come away with a slightly better understanding of PnF & possibly a new trick or two to backtest. If you're looking for an easy to follow system that looks pretty solid, you've just found it. I guess I'm just kind of amazed that such a simple concept & trading system can go on for 400 pages. I mean comparatively "Come Into My Trading Room" is just shy of 300 pages and packs the punch of this ENTIRE book into a single chapter. Not to say Elder's book is a one stop shop. Clearly no single book will "cover all the bases" (oh yeah I just remembered another peeve--he uses sports analogies all over the place, which usually wouldn't bug me but for some reason his use of them doesn't clarify what he's saying as well as a sports analogy usually does) but I had hoped to cover my PnF needs with this one.
The simplicity of the P&F method bolsters its robustness in an effective trading program. Not only do price charts readily summarize market status, but other P&F techniques assist in reducing uncertainty. For example, it is possible to derive the likely extent of price movements from horizontal and vertical counts of congestion widths and depths; a bullish percent indicator is absolutely indispensible to successful trading; also, relative strength charting of individual sectors or issues compared to market averages helps answer both investment questions, "what," and "when." P&F analysis is useful in trading any vehicle from securities to futures. This was the first charting method used in the US and its use probably dates back to 1885, as per "Kline's 123 Tread Register."
Dorsey's book is a complete exposition of the P&F method. Based upon the prior writings of Ernest Staby, Abe Cohen, and Earl Blumenthal, the method is based upon a "reversal" formula using data readily accessible, as compared to the traditional "point" method of Wyckoff, deVilliers, and Taylor, which required access to tick-by-tick data. This book is well written; the material is presented clearly with many examples; and the method is very helpful in clearing the noise from market analysis.
Free P&F charts are available from stockcharts.com. In particular, I prefer percentage charts which eliminate the "box size" problem and facilitate intermarket comparisons. These percentage P&F charts require an adjustment in calculating horizontal and vertical counts, as follows. In, say, a 2.5%-2 box reversal chart of WTIC, a horizontal count on a congestion stretching from Sep06 through Jul07 has a width of 18 boxes. Multiply this width (18) by the number of boxes in a reversal (2) and this becomes the exponent in the following formula: ((1+percent)^Exponent)*Low price in congestion = Target high price. (For a target low, divide the high price of the congestion by the percent to exponent.) [For WTIC: ((1+.025)^(18*2))*51.34 = 124.89 to 128.01 (bottom of range, 124.89 [calc] * 1.025 = top of range 128.01.] For vertical counts, count unbroken movement from high or low of congestion, multiply by reversal boxes, and use this as exponent for the box range percent. Multiply or divide the high/low price of the congestion be the exponented percentage.
I feel that acquiring familiarity with the P&F method will substantially increase one's ability to successfully identify and exploit market opportunities as they mature. Dorsey's work is a great place to start!