21st Century Point & Figure - Review
One of the larger volumes sitting on the shelf of my trading library is Jeremy du Plessis’s 2005 publication ‘The Definitive Guide to Point and Figure’. It weighs in at 500 pages - and I do mean ‘weigh’ as it’s printed on high quality paper - and covers pretty much everything you could ever want to know about this old form of technical analysis (its roots are unclear but it has been in use since the 1800’s). So when Du Plessis’s new book became available for review at T2W I was intrigued at how this would move on from his previous tome – after all, what is a higher superlative than ‘Definitive’ ?
Actually the introduction to ‘21st Century Point & Figure’ makes the new book’s role clear: the 2005 volume remains ‘ Definitive’, this smaller book (a mere 170 pages in comparison), moves the analysis forward on how to integrate P&F with other forms of TA, starting with moving averages, through Bollinger Bands, RSI, MACD, measures of market breadth, you name it...
The book starts with a refresher on P&F but makes the point that readers should be familiar with the technique before tackling this book, ideally by having previously bought and read ‘The Definitive Guide’. A newcomer to P&F could probably supplement this brief section with some reading from the internet to get to the level required to attempt the remainder of the book, but there are caveats explained below: this book is not really for P&F newcomers.
At this point, it’s probably worth making clear my experience with P&F techniques, to put the scope of this review in context. I bought (and better than that, actually read) the 2005 ‘Definitive Guide...’ when it was published at that sponge-like point in my early trading career where I wanted to read and understand as much as possible hoping something would stick. There were various things I liked about P&F but for me there were two barriers that discouraged me from taking it much further. The first was practical: apart from data supplier Updata (for whom Du Plessis works), P&F was not frequently included in charting packages and when it was, often lacked the sophistication required to do anything beyond the very basics. At the time I was already paying for a couple of data services and adding Updata’s just to see if I could get anything useful from P&F seemed excessive. In the end the limitations of whatever free P&F charting I managed to find was a constraint to me taking it further.
The second factor was the methodology itself. P&F is essentially a way of plotting support and resistance, but eliminating time from the x-axis to get rid of ‘noise’. While this did highlight major areas of S&R, and corresponding break-throughs or failures, I didn’t find that these were materially different to looking at the same on a conventional chart, with the added thought that if you are trading with or against the herd, it is useful to be looking at exactly the same picture that 99% of the market will also be using. There was also a degree of subjectivity involved which I was uncomfortable with, so changing the chart basis from arithmetic to log, or even just the box count, can completely change where the areas of S&R appear.
So as a lapsed P&F user, would ‘ 21st Century P&F’ tempt me back?
After the P&F revision, the second chapter tackles the obvious question: if P&F has worked for more than a hundred years, what’s different about the 21st century? The answer essentially is: better IT, explaining how software allows optimisation of box sizing, for example by setting boxes as a function of volatility: the idea of using ATR as the box size seemed to have legs which I would like to investigate further.
From here, the remainder of the book moves through integrating P&F with other TA techniques including MAs, Bollinger Bands, Parabolic SAR, various oscillators, and MACD. The twist here, is that without ‘time’ plotted as a constant along the X-axis, TA is of the P&F chart, not the raw data. This is intriguing and piqued my interest in experimenting with the ideas presented but here the book runs into the practical problem I’ve had with P&F in the past: finding adequate charting packages without having an Updata subscription. I am fortunate enough to have a Bloomberg Professional account, and this has solid P&F capabilities for plain vanilla charting, but you can’t add other analyses to your P&F chart. If Bloomberg can’t do it, I’d be surprised if there was other free software out there that can. Stockcharts .com has some functionality but ultimately with a limited (US centric) universe and only a few overlays (and I’m dubious about the calculation of the MA which Du Plessis is very precise about). While the book gives plentiful examples and walk-throughs, there’s no substitute for firing up your own charts and experimenting with instruments you know well and have not been cherry-picked. The Updata website offers a free trial of its TA package, which I will take advantage of when I have sufficient time to dedicate to trying out the methods and getting the most from the trial period. But to be clear, reading this book without having the Updata TA package to experiment on as you go will be a somewhat frustrating experience.
Published by Harriman House, the book is attractively presented with clear text and charts (as you’d expect for £45!), and Du Plessis is a clear and concise writer.
In summary, for an experienced P&F trader with an Updata subscription, buying the book would be essential to get the most from the software as much as anything. In fact the book should be given to subscribers as an instruction manual. For an intermediate Point-and-Figurer with an interest in developing the methodology and who has the time to try the Updata free trial in conjunction with working through the book’s ideas, it’s also worth reading. For anyone else, then Du Plessis’s original book from 2005 is probably the better bet, now in a ‘new improved’ 2012 second edition.
