Eric,
EZ-PnF allows you to add lines to the charts, but the placement is determined by the user. There are no 'analysis' capabilities built into EZ-PnF. A version with those kind of capabilities would cost a lot more to register... ;-)
So, the trendlines you see are ones that I add to the charts. The placement and ones selected are based on over 25 years of using point and figure charts. I'm not bragging so much as trying to say that after a number of years of watching the charts and patterns, you 'get a feel' for which trendlines are significant.
It is not all 'gut feel' though. I subscribe to a theory that stocks will trade within 'overall trading channels'. These are wide bands that encompass maximum high and maximum low prices, usually beginning at a fundamental direction turnaround eg the high point reached on an overall bullish trading channel will mark the high value of the overall bearish trading channel's bearish resistance line when the chart switches from bullish to bearish. The minimum, or bearish support line may, and probably will, be adjusted as lower lows occur, but a base value will form that can be used for trading.
A similar thought process applies to the bear to bull overall switch point. An overall bullish support line gets formed and the overall bullish resistance line gets adjusted as higher highs are formed.
Within these 'overall trading channels' there is enough dynamic range that you can have shorter term bullish or bearish trading trends/patterns occurring. Usually the 'investor' ignores these signals, as long as, the 'overall trading channel' isn't violated. But a 'trader' can use these interior patterns to trade bearish in a bullish overall channel or bullish while within a bearish trading channel.
Once I establish the 'overall trading channels', I look for support/resistance lines that seem to have been 'effective' over long periods of time (or, since P&F charts do not recognize time, over many columns ) This may result in a previous resistance line that, once broken through, is now effective as a support line and vice versa.
Finally, I work the end of the chart, the area where the 'uncertainty' is maximum. I will strike both support and resistance lines when a pattern is not resolved. These allow me to show possible support and resistance price points.
I hope this is making sense, it's a forest and trees thing for me and I haven't yet begun writing my book on the 'new' P&F which uses log scaling, etc. :-))
If you would like to ask about specific charts posted at:
pipeline.com
I will be able to tell you why I did what in that specific case.
Ben A. |
