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establish if the box size changes。part way through the counting column。
The puterization of point and figure charts。enables。true log scale point and figure charts。to be drawn by increasing the value of each box by。a fixed percentage。 This。means。the percentage change throughout the chart isnstant； but the box size at each level varies。 So instead of a box size measured in the traditional fixed number of points； the box size is。measured as。a percentage。 For example； if a box size of 1 percent is。chosen； the size of the box above is。1 percent larger than the box below； or 1。01 times。the size of the box below。
Point and figure construction is。about setting a scaling framework。before the chart is。drawn。 With fixed box size （arithmetic。scale） point and figure charts； the box size determines。the chart grid。 So a box size of 5 points results。in grid values。of 5； 10； 15； 20 points； whereas。a box size of 10 points。results。in grid values。of 10； 20； 30； 40 points。 With a percentage box size （log scale） chart； however； the grid is。determined by increasing the value of each grid point by the percentage。 Mathematically； it's。easier to do this。by taking the natural log of the starting price； as。well as。the percentage increment； and adding the logged increment to the logged starting price to achieve the new grid。 Once the grid has。been obtained； the chart data are logged as。well and the chart plotted using the logged values。 Finally； the logged values。and grid levels。are anti…logged to bring the chart back。to real prices。 The result is。a true log scale point and figure chart in which the box size grows
smoothly as。the price rises； thereby catering to the
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example； at 75； the box size is。1。5； whereas。at 5 it is。0。1。 There is。a smooth； not a stepped； increase in the box value as。the price rises。and falls。
In paring the two charts； notice the large swings。in the arithmetic。chart around the 75 level； indicating that the box size is。too small。 Notice the lack of sensitivity around the 10 level； indicating a box size that is。too large。 The log scale chart adjusts。for this。automatically； because it is。a chart of constant percentage change rather than constant point change。 Trend lines。are valid on both charts； but they pass。through different points。 Point and figure targets。（not shown） will also be different because the column lengths。and pattern widths。are different as。are the values。of the boxes。within the columns。
The decision whether to use log or arithmetic scale is no different from that with bar or line charts。 Log is。better for longer…term analysis and when the price has。risen exponentially。 Arithmetic。is。better for the shorter…term and when the price is within a range。 Some instruments。have linear trends； and some have exponential trends。 The simple rule is。to look。at both； and you will soon see
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are not important； but the level of the target is。 A number of targets have been placed on the chart so you can see the levels。predicted and how these help to confirm or reject the trend。 Notice during the uptrend in relative strength that all upside counts。are exceeded and no downside count is。achieved until the top in October 2002； when the upside count of 331 is。negated and downside counts。are achieved。 There is。one outstanding downside count of 123； indicating that there is。more downside potential on the relative strength。
The chart in Figure 8。8 is a log scale chart using a box size of 1 percent。 It is。suggested that you use log scale charts。for relative strength so you can match these with the same percentage box size on the price chart； ensuring that you're looking at the same time horizon。 You may look。at a shorter time horizon by changing the box size to 0。5 percent or even 0。25 percent。
Moving Averages； Parabolic SAR； and Bollinger Bands
Another recent development in point and figure charts。is。the addition of moving averages。following the technique discussed by Kenneth Tower in his。chapter on point and figure charts。in New Thinking in Technical Analysis。（Bloomberg Press； 2000）。 Tower suggests。that the length of the moving average be measured in columns rather than in days or weeks； allowing moving averages。to be used effectively on point and figure charts。 The purpose of using moving averages。on point and figure charts。is to assist in defining the trend and therefore in accepting or rejecting point and figure buy and sell signals。 Because signals。are more objective on 3…box charts； the use of moving averages。tends。to be easier； although there is。no reason why 1…box charts。can't be used just as effectively。 Trend direction is。best defined by two moving averages。of different lengths。 When the shorter length crosses above the longer length； the chart is。placed on a buy alert。 The buy signal occurs。on the next point and figure double…top signal。
Determining the best lengths。to use is。a trial and error； or optimization process。 A good rule of thumb is。to use lengths。that are half those you use on line charts； because in calculating moving averages。on point and figure； the average of each column is。calculated before the moving average is。calculated。 Average lengths。can be close to one another because a crossover is。not a signal but rather an alert。 Crossovers。have to be reconfirmed by the point and figure signal。
Panel A in Figure 8。9 is。a 2％ x 3 log scale chart of the Walt Disney Co。； with 5…and 8…column exponential moving averages。 When the 5 crosses。below the 8；
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Panel B in Figure 8。9 is。the same log scale chart of Walt Disney but with a Wilder parabolic。SAR with an acceleration factor of 。02。 The parabolic is。a stop…and…reverse system； in which the parabolic。line starts away from the price but then accelerates。toward it as。the trend matures。 Its。use with point and figure is。the same as。that for moving averages： The parabolic。switch from long to short places。you on alert； and the next double…bottom sell signal is。taken at point （c）。 The parabolic。switch to long places。you on alert to take the next double…top buy at point （d）。 Notice that immediately after the buy at point （d）； the price