Larry,

I have taken your challenge to learn how to read point and figure charts and I have found it to be very interesting. I even went through the P&F University as you suggested. I can tell that learning to read point and figure charts will be very beneficial.

Anyway, I was wondering if you could answer a question for me. I have been pondering the use of point and figure charts in helping me find entry and exit points on my short term trades. Anyway, I know that when using MACDs, RSIs, Bollinger Bands or other technical indicators, they will automatically apply to the scale of the chart that I am reading. If I am looking at a one hour chart, the indicators apply to that time scale, but if I change it to a daily chart the indicators will apply to a daily time scale. Anyway, I am wondering if the time scale that I use to create my P&F charts also does this, and if so do I treat it just like another indicator?
I am thinking about running an experiment for some short term trades and using the "simple" buy and sell signals from the point and figure charts and then I will enter a stop at the support line and a limit at the resistance line. I read about a study that was done and they have found that if you follow the simple signals (meaning one 'x' versus a triple top) you will get around a 53 percent success rate and if you follow others such as the triple top you may have a success rate reaching the 90 percent range. If I create a system using this approach and couple it with sound money management, I think it could prove to be very successful.

Do you have any suggestions as to how I might pull this off? If I want to enter in positions for just a couple of hours or maybe a day or two, what time scale should I use on the P&F chart?

Thanks again for all of your help and wonderful guidance!

--Ben

Ben,

Time is not a factor with PnF charts. That's one of its advantages (some would say a disadvantage). So when an "X" or "O" is made on the chart it doesn't matter if it happens this hour, this day, or this week. It just considers price, not time.

In order to make it work in the very short time frames that you're talking about you would have to reduce the box scaling and experiment with it. If I misunderstood your question let me know and I'll try again.

Larry

Larry,

Thanks for taking the time to answer my question. I've been doing some experimenting with my software and, as you said, time is not a factor with point and figure charts.... however, I've definitely observed that when I create a point and figure chart based on a tick by tick chart vs. a point and figure chart based on an hourly or daily, the chart is very different based on that time scale. I know you're right, I guess I'll just need to keep playing with it and try different box numbers, etc. to see what will work. I just thought you may know a few inside secrets off hand that could give me a jump start.

While I am thinking about it, this leads me to another question. I want to create a short term trading system that can yield at least a 50 percent success rate and use indicators that are easy to read. I got very interested in point and figure charts for this reason, but then I've realized that other indicators such as the MACD or RSI or fibonacci lines may yield as good of results if not better. (I don't know this). Do you happen to know of an indicator that I could follow for simple buy or sell signals that will yield a success rate of at least 50 percent? I say 50 percent because I figure that by using sound money management my system would be profitable if at least half of my trades were successful. Also, I'd actually prefer to use a common indicator because that way I could subscribe to an alert service that could send me alerts when I recieve a buy or sell signal based on one of these indicators. I've looked around and not seen a service that will do this with point and figure charts.

Anyway, I hope I've expressed myself clearly enough for you to be able to point me in the right direction!

Thanks a million!

--Ben

Ben,

Any indicator can have a 50% success rate depending on how you use it. After all, flipping a coin will give you a 50% success rate. But it depends on how you use an indicator. If your profits are twice your losses on average you can make a lot of money at 50% or less. If your profits are equal to your losses you won't make any money at all. So it's not your entry it's your exit that makes the difference.

I don't have any preference of one indicator over another. They can all be good or they can all be bad depending on the user. You just have to do a lot of testing and come up with something you're comfortable with. But remember that the shorter term you get the more difficult it's going to be. For example, I'm sure there are day traders out there who have consistently made money over a long period of time. But I have never met one.

Larry