Point and figure charts at Trade10.com- The science of trading market momentum for stocks, options, futures and bonds.

Critical Day Analysis

Our critical day analysis is all about trend reversals. We tell you when there is a high potential for a reversal of the short trend and we've been doing it since 1994 with an 80%* accuracy.

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WALK THROUGH A CRITICAL DAY

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Point and Figure

A point and figure chart is a technique in charting that disregards the passage of time and only charts changes in prices. In constructing a point and figure chart, a "box size" is first defined as the minimum movement in prices that will occur before a plot of the price change will occur. An "X" is displayed when prices rise by the "box size" and an "O" is plotted when prices fall by the box size. No X's or O's are displayed if prices rise or fall by an amount that is less than the box size.

Every column in the chart can contain either X's or O's but not both. When prices reverse, they must reverse by a reversal amount that is then multiplied by the box size before a new column is created.

A new column therefore signals a change in the price trend.

Below is a graph of Louisiana-Pacific Corp during the same time frame only plotted as a candlestick chart of daily prices.

For Point and Figure Charts, only significant prices changes are depicted on the chart. The usual box size is 1 or 2 points for medium priced stocks and 3 to 5 points for higher priced stocks. Reversal amounts are usually defined as being double or triple the box size.

The Point and Figure Chart allows for a visually clear sense of support and resistance levels. Breakouts from a particular level can give indication of where the trend in prices is headed in the future. The longer a price plot moves in a consolidation or sideways movement, the stronger the reaction can be on a breakout.

These charts allow investors to analyze various price formations and spot buy and sell signals through trendline penetrations and breakout from support or resistance levels. Point and figure charts also allow for a quick assessment of the overall trend of the market and in potentially determining whether price is at risk of reversal.

To the right technical studies are examined in more detail to provide a sense of conformational evidence for traders of the critical day. Click on any of the terms to take a closer look at a technical discussion on that topic. All formations, patterns, indicators and technical tools fail at various times and so should only be used to build a body of evidence in forming a trading decision rather than being solely relied upon. There are a number of valuable studies that lead to intuitive understandings about price and volume but a strong compliment to technical analysis is an understanding of the trends and changes in the fundamentals and economic activity that ultimately lead valuation levels in the markets.

Walk through a critical day

The graphs show a price plot of the Dow Jones Industrials from Sept 28/00 to early November. The First graph ends on November 3/00, two days before an upcoming critical day on November 7/00. Our members looking at the market are expecting a trend reversal to occur due to the high rate of success in our research. Ideally a member will be using their own skills to judge the supply and demand changes, using technical and fundamental indications to confirm suspicions of a reversal, and trade accordingly.
On the second graph we see that the price action on November 6 was a bullish day, reversing the short trend so that the short trend leading into the critical day is now up. A critical day is an expectation of a reversal of the short trend that immediately precedes the critical day. In the case of the November 7 signal, given to members 3 days before, is an indication that the upward moving trend, recognized at the close of November 6 is expected to reverse direction.
On the third graph we can see that November 7 was a low volatility after a large gain on November 6 of about 160 points for the Dow Jones Industrials. The subsequent move over the three days following the November 7 signal saw the Dow Jones Industrials fall 376 points. The next day, November 13, the Dow Jones Industrials lost an additional 83 points with intra-day low a full 609 point loss since the open on the critical day.

Most recent signals

A closer view of the most recent signals. You can see the short trend immediately prior to a successful critical day, reverses coming away from the critical day. Often a failed critical day will indicate a stronger bias in the market for continuation of the trend that was in place prior to the critical day. A failed signal can therefore provide as much information and opportunity as a successful one. Take a look at tech studies to develop a sense of trend reversals and use.

Tech Studies

Comparative Relative Strength

Congestion Pattern

Consolidation