Point & Figure Charting is Economics 101
Point & Figure Charting is conducted along technical lines, adhering to the relationship between supply and demand. Simply stated, we focus on the “price” of a security, because it is the ultimate determinant of supply and demand in the marketplace. When you cut through all the red tape on Wall Street and Bay Street, what moves equity prices is supply and demand. It is Economics 101. We don’t buy bathing suits in the middle of winter or fur coats in the middle of summer. The same forces that move prices in the department store or the supermarket move the stock market. When all is said and done, if there are more buyers than sellers, then price will go up and if there are more sellers than buyers then price will go down. Analyzing the price action of a security can yield important information as to who is winning the battle for that security- supply or demand.
The Point & Figure methodology has been around for over 100 years. One of the first proponents of the methodology was Charles Dow, the first editor of The Wall Street Journal. Charles Dow was a fundamentalist at heart, yet he understood the importance of the supply and demand relationship in any stock. The Point & Figure methodology is still valuable today because it as a logical, organized way of recording the forces of supply and demand. We have reached out to the assistance of Dorsey, Wright & Associates who has taken this time-tested approach and given it new life by applying technology. Relative Strength — analyzing the performance of investment options against one another — is a valuable offshoot of Point & Figure.