HOW TO INTERPRET WYCKOFF P&F CHARTS

The procedures for the interpretation of the Wyckoff-oriented point-andfigure chart are listed below, outlined as six steps.
Start with a bar chart and a point-and-figure (P&F) chart covering the same patterns and time. Wyckoff prefers the one-point reversal chart—for example, the DJIA blocked in boxes of 100 points each. But Wyckoff insists that at least two entries must appear in each and every column. That leads to occasionally combining X’s and O’s or up and down price movements to meet the minimum standard of two entries per column.
The box size is important. For the DJIA the Wyckoff/Stock Market Instituteuses 50 and 100 points. Please note that those are generated by the actual tape prints within a day. Hence, a very volatile day may produce many point-and-figure ups and downs.

1. Use the bar chart to identify one, or usually two or three, potential reversal patterns—for example, an inverse “head-and-shoulders” (H&S) bottom followed by a “cup-and-handle” on the same chart.

2. The point-and-figure count will be taken from the right shoulder or from the handle identified on the bar chart—in other words, from the last pullback before the price advance or markup stage.

3. On the P&F chart count the number of boxes across the accumulation formation (for example, inverse head-and-shoulders, from shoulder to shoulder).

4. Count the number of boxes (columns) and multiply that number by the value found in each box (for example, 50 points). Note that although some columns may have only two boxes, one after the other, and other columns contain several boxes, the same per box value applies. In our case, the 2002–2003 bottom had 72 boxes (columns) each worth 100 points, for a total of 7,200 points.

5. Add the total count to the lowest price on the P&F chart itself and to the count line itself. Thus, in the 2002–2003 example 7,200 points were added to the low price (the “head” of the inverse head-and-shoulders of 7,200) for an upside projection of 14,400.

6. Conservative is the guiding principle. Project the minimum pricefirst; use the minimum projection to estimate the reward-to-risk ratio.