Point and Figure construction 1-box
Firstly, let us begin with 1 -box reversal charts
A 1 -box reversal means that if the price reverses by the value of one box, an up-column changes to a down-column or a down-column changes to an up-column. Remember, up columns are usually represented by Xs and down-columns by Os. So, each time the price reverses by the value of at least one full box you move across by one column and start plotting in the opposite direction, changing from an X to a 0 or a 0 to an X.
Why change columns when price reverses?
The only reason you move across to the next column is to avoid plotting an X on top of a 0 and vice versa.
One-step-back
One-step-back can only occur in 1 -box reversal charts. It occurs when the price reverses direction by the value of one box only and then reverses back in the opposite direction. For example, if you are plotting a column of Xs and the price reverses by one box, you move across to the next column to plot the 0. You have to move across to the next column because there is no room to plot the 0 in the current column of Xs. Now you have a new second column with one 0 in it.
Consider now what happens if the price rises from 15 to 16 without first falling to 14. You need to plot an X representing 1 6, but you do not need to move to the third column to do this, because there is room above the 0 in the second column, shown by the shaded area.
Therefore, contrary to many beliefs, it is actually possible to plot both an X and a 0 in the same column.
The one-step-back is a powerful sign. When the price reverses by just one box, it may be the start of a correction or just be a temporary aberration in the trend, so you need to wait for the next plot in the column to tell you whether the trend is going to continue from the previous column or whether it is a true reversal. If it is a temporary change, the price will reverse back and when it does, the next X or 0 must be plotted in the same column.
It means that any supply during the uptrend is quickly absorbed and the demand takes control again.
- 1 -box reversal charts
- 1 -box reversal charts plot every full box movement in the price in both directions.
- Normally, a new column is started each time there is a reversal, except when there is a temporary reversal of 1 box only - called one-step-back.
- 1 -box charts are the only charts that can have an X and 0 in the same column.
- The value of the box - not the price - is taken into account when determining the next plot.
- Price changes smaller than the box size are ignored.
- There are no gaps on the chart.
- If the price gaps away, all boxes must be filled in.
IMPORTANT NOTE:
It is always the last plotted box and not the last price that is considered when deciding whether to fill the next box or change columns. We should not make the mistake of considering the last price. Once a price is used to plot an X or 0, the price itself is discarded and no record is kept. It is not possible to look at a Point and Figure chart and know what price generated any X or 0.
