The following will give you a solid base to further study two important principles of P&F charting: support levels and resistance levels. You should remember that both support and resistance are shown in horizontal lines and trendlines are represented with 45-degree angles.
A support level is a level at which investors and traders alike believe prices will start to move higher after hitting the support mark. Have a look at the three O’s in the example above to see what this means. A horizontal row of O’s is what you are looking for when zeroing in on a trend reversal and an uptrend to begin.
A horizontal row of X’s marks the resistance levels you need to be looking for in the P&F charting study. Studies of trendlines have shown that a break through resistance levels generally occurs with great gusto—that is, with big volume and a rapid increasing stock price.
Trends take a long time to reverse, so traders should remember that P&F charting is designed for long-term investors and has no value whatsoever for the short-term trader. By using point and figure charting to identify overall price trends, technical investors can take positions that have a strong probability of profiting.
This is just a basic overview of P&F charts. The best book ever written on the subject is “Point and Figure Charting” by Thomas Dorsey. This book is a must for all those who want a thorough understanding of this popular charting method. Since the introduction of P&F charts, they