Stock Market Tools (9) - Point & Figure Chart with Relative Strength

Point & Figure Chart is an extremely old tool that use to trade the market. The oldest chart was found in a book "The Game in Wall Street, and How to Play it Successfully" written by "HOYLE" and first published in 1898. This tool is

very effective in aiming for longer term movement rather than day trading kind of hit and run tactic. So, it is particularly good for people who are having a full time job, and want to handle their own money in trading the market.

Fig. 1 The first form of Point & Figure Chart found in old book published in 1898.

Fig 2. P&F Chart on Commodity ETF (DBC) dated 6 Nov 2010(EOD).

Chart generated with Bull-Eye's Broker Software

Click on the Chart to Zoom In for clearer view. ^

Over time, with the aid of computer, Relative Strength Benchmarking feature is also added in the P&F Chart. The Chart (Fig 2.) shows the P&F diagram of the ETF- DBC, along with the Relative Strength against SPY and SGDUSD (Singapore Dollar vs US Dollar).

The first Relative Strength is to benchmark the S&P500. One should always remember to select a vehicle that is moving faster than the broad market index.

For the second Relative Strength, one can choose to benchmark a currency exchange rate. For example, a foreigner may like to buy some stocks or ETFs in the US market, but worry about the profits may be eroded by the weak USD against their home currency... By having this Relative Strength benchmark, one can make sure that he choose a vehicle that is moving faster than the change of currency exchange rate.

Many traders who know Technical Analysis may not know much about this tool or just ignore it. The main stream media, of course, do not publicize such tool that encourage patient which would lead to low trading frequency and hurt trading firms' commission.

On the other hand, this is a very straight forward tool that one can simply get a book on P&F and use the online free resources:-

-> P&F Charting Tools Online (Free).

-> Ebooks (Some are still under copyright).

------------------------------------------ Tea Break --------------------------------------------

Isaac Newton Loses A Big Fortune in the South Sea Bubble:

Even Sir Isaac Newton (4 Jan 1643 - 31 Mar 1727), the well known English physicist, mathematician, astronomer, natural philosopher, and theologian, got caught up in the South Sea mania and invested a big chunk of his fortune. Interestingly, he pulled out early (after making a respectable 7,000 pounds) then went back in after the bubble continued to inflate. The inevitable bust happened and he lost 20,000 pounds - a considerable sum at the time.

As a result of this crisis, he stated "I can calculate the motions of heavenly bodies, but not the madness of people".

Well. Recently, I heard of quite a few cases that some people due to what ever reasons, get out of their jobs in the corporation and just want to go trading for a living... Thinking that the success in one field can directly port over to the stock trading business within a short period of time. Such as buy a trading system, attend a class or just read a few books. This real story may help one to realize that success in one field or many fields such as a genius like Newton can fail in the Stock Market speculation miserably.

The objective of putting up this fact is not to deter anyone to get into the market, but rather to ask one to prepare seriously in advance. One should seriously consider study how the market works as a part of the retirement plan. Such as learning how a trading system works, how to test it, improve it, when to follow it and when not to follow it, forming a study group, etc... DON'T expect the insurance policies can help to cover the inflation (or if there is still any life insurance companies lift over after the baby boomers,1946-1964, had collected their shares.)

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"Put Stock in Yourself, that is the only

one that will always go up!"

-Bashar

 

 

 

----- Point & Figure Programming Flow Chart, Inserted on 25 July 2013----------------------