Stock Prices

Point and figure charts plot the price action of a stock. The goal of the chart is to provide an orderly pattern clearly depicting the times that demand and supply are in control. A chart that moves repeatedly from buy to sell signal without showing a clear trend is of little use. Since time is not a consideration when charting, the amount of activity depicted on the chart is based on the price scale. The standard scale adjusts as the price of the stock moves higher.

The breakpoints are:

One fourth point per box from USD 0 to USD 5

Half point per box from USD 5 to USD 20

1 point per box from USD 20 to USD 100

2 points per box from USD 100 to USD 200

4 points per box above USD 200

These changes are not based on percentages; however, the adjustments in scale help account for the larger price movements found in higher-priced stocks. Sometimes we find stocks, as well as whole sectors, that experience wider and wilder price swings. A recent example of this is the Internet stocks. With these stocks it is not uncommon to see 10-point intraday swings. This wild price action causes the chart pattern to become disorderly. The charting analyst begins to see more and more signals, and it becomes increasingly difficult to determine whether demand or supply is in control.

To account for this price action, we often adjust the scale to slow the chart down so that it provides an orderly pattern that more clearly identifies whether supply or demand is in control. However, there is a downside to these large-scale charts. It takes a much larger move in the price of the stock to cause the chart to reverse or give a buy or sell signal. When investing in stocks that require these larger box sizes, be sure you can stomach the moves required to form the chart.

If you were looking for more action from the chart, the 5-point chart might have been a better option. It still managed to remove a lot of the whips, as it gave only nine total signals rather than eighteen, and it didn�t require such a large move in the stock price to cause a reversal on the chart. Adjusting box sizes is perfectly valid, and when presented with a wild stock, you should use the box size that best fits your investing demeanor. Traders will want to use more active charts. Longer-term players will want to find a combination between order and manageable stoploss points that fits their tolerance.

If you want best stock recommendations and useful stock market tips, visit www.5minutetrader.com/ for online stock trading manual.

Article Directory: http://www.articlecrash.com/

Please Rate The Above Article From The Investing Category
Article Title: Stock Prices

5 out of 54 out of 53 out of 52 out of 51 out of 5 

Not yet Rated

Syndicate Investing Related Articles Via RSS!

Boost your websites' search engine ranking! Attract more repeat visitors!
Automatically, consistently update your content via Really Simple Syndication (RSS). To syndicate the above article and other Investing related articles on your blog or site, simply click on the XML Icon above to grab the RSS feed -- It's FREE!