P&F Price Objectives

Introduction

Important: Price objectives should not be used as the sole reason for buying or selling a security. Even though these objectives stem from a bullish or bearish P&F signal, they are just general guidelines on what to expect based on the strength of the move. Some securities reverse before reaching their price objective and some reach their price objective. A lot can change after a given signal. Chartists should continually monitor the technical situation for signs that validate or invalidate the Price Objective.

StockCharts.com automates Point & Figure price objectives using the Breakout Method and the Reversal Method. These methods are based on the vertical length (height) of the Price Objective Column. Identification of the Price Objective Column depends on the method. The longer the column is, the higher or lower the price objective. This article will show chartists how to find the Price Objective Column for the Breakout Method and Reversal Method. Once the Price Objective Column has been identified, chartists can then apply classic P&F counting techniques to estimate the price extension and apply it to the Price Objective Column.

Basic P&F Signals

Before looking at the Price Objective methods, it is important to understand the basic P&F signals. Basic Double Top Breakouts and Double Bottom Breakdowns provide the signals to trigger bullish and bearish price objectives. The Breakout Method and the Reversal Method do not consider classic P&F patterns, such as Triple Top Breakouts, Triple Top Breakdowns and High-Pole Reversals. These patterns may indeed be present, but it is the basic P&F signals that matter for the price objective methods discussed below.

A bullish alert is triggered with a Double Top Breakout. This is the most basic P&F buy signal. A bullish alert triggers when the current column of X's exceeds the prior column of X's. It is essentially a higher high or a breakout. The ability to exceed a prior high shows strength.

A bearish alert is triggered with a Double Bottom Breakdown. This is the most basic P&F sell signal. A bearish alert triggers when the current column of O's moves below the prior column of O's. It is essentially a lower low or a breakdown. The inability to hold a prior low shows weakness.

StockCharts.com Price Objectives - Chart 1

The chart above shows Best Buy (BBY) with a series of Double Bottom Breakdowns and Double Top Breakouts. As the most prolific P&F signal, chartist can expect to see a lot of these. One of these signals will always be present. In other words, a P&F chart is either on a P&F buy signal (Double Top Breakout) or a P&F Sell Signal (Double Bottom Breakdown). It takes a P&F sell signal to reverse a P&F buy signal and visa versa.

Bullish Breakout Method

There are three steps to finding a Bullish Price Objective with the breakout method. Before starting, it is important to make sure the current chart is on the P&F buy signal (bullish alert). This means there is a bullish Double Top Breakout and the chart shows a Bullish Price Objective, which is shown at the upper left of the chart and on the price scale (green numbers/letters).

First, working from right to left, find the most recent Bearish Alert Column. This is the column of O's that produced the most recent P&F sell signal. This may sound strange, but we need to find this column in order to identify the P&F buy signal that reversed the last P&F sell signal.

Second, from this Bearish Alert Column, work right to find the next P&F buy signal (Double Top Breakout). The column that produces this P&F buy signal is most important because it was strong enough to reverse the P&F sell signal. It is now the Price Objective Column. Keep in mind that this Price Objective Column might not be the one that produced the most recent P&F buy signal. It is simply the one that reversed the prior P&F sell signal.

Third, calculate the Extension Estimate and add this to the low of the Price Objective Column. Count the number of filled boxes in the Price Objective Column, multiply by the box size and then by the reversal amount (typically 3). The box size and reversal amounts can be found at the top-left of the P&F chart. Add this Extension Estimate to the low of the Price Objective Column to determine the Bullish Price Objective.

The chart below shows Goodyear (GT) with a Bullish Price Objective of 19.50. Just the fact that we see a Bullish Price Objective tells us that the most recent signal was a P&F buy signal. Now we look left for the most recent Bearish Alert, which is a Double Bottom Breakdown. Working right from this Bearish Alert Column, the next Bullish Alert was triggered in January (red 1 on the Double Top Breakout). This column reversed the P&F buy signal to become the Price Objective Column.

StockCharts.com Price Objectives - Chart 2

The Price Objective Column measures 6 boxes. Each box is 50 cents and the reversal amount is 3, which gives us an Extension Estimate of 9 (6 x .50 x 3). We add this to the low of the Price Objective Column for an upside target (10.50 + 9 = 19.50). You may notice that a High-Pole Warning has been identified as the P&F pattern. While this is a bearish pattern, the Bullish Price Objective will not be reversed until there is a Bearish Alert with a Double Bottom Breakdown.

StockCharts.com Price Objectives - Chart 3

The chart above shows FirstEnergy (FE) with a Bullish Price Objective of 51.50. Looking left (back), we find the most recent Bearish Alert Column right next door. The P&F sell signal was reversed with the very next column, which becomes the Price Objective Column. This column is 11 boxes high. Each box is 50 cents and the reversal amount is 3, which gives us an Extension Estimate of 16.50 (11 x .50 x 3). Added to the low of the Price Objective Column, we have a Bullish Price Objective of 51.50 (35 + 16.50 = 51.50). This implies a multi-year high because the high of the current chart is at 48. These price objectives are not HARD targets. They are simply rough guidelines.

Bearish Breakdown Method

There are three steps to finding a Bearish Price Objective with the breakout method. Before starting, it is important to make sure the current chart is on the P&F sell signal (bearish alert). This means the most recent signal is a bearish Double Bottom Breakdown and the chart shows a Bearish Price Objective, which is shown at the top-left of the chart and on the price scale (red numbers/letters).

First, working from right to left, find the most recent Bullish Alert Column. This is the column of X's that produced the most recent P&F buy signal. This may sound strange, but we need to find this column in order to identify the P&F sell signal that reversed this P&F buy signal.

Second, from this Bullish Alert Column, work right to find the next P&F sell signal (Double Bottom Breakdown). The column that produces this P&F sell signal is important because it was strong enough to reverse the P&F buy signal. It is now the Price Objective Column. Keep in mind that this Price Objective Column might not be the one that produced the most recent P&F sell signal. It is simply the one that reversed the last P&F buy signal.

Third, calculate the Extension Estimate and subtract this amount from the high of the Price Objective Column. Count the number of filled boxes in the Price Objective Column, multiply by the box size and then by 2/3 reversal amount. Typically, the reversal amount is 3, which would mean multiplying by 2. Using 2/3 of the reversal amount for bearish counts is advocated by A.W. Cohen, a pioneer in P&F charting, and Tom Dorsey, author of our favorite book on P&F charting. Subtract the Extension Estimate from the high of the Price Objective Column for a Bearish Price Objective.

StockCharts.com Price Objectives - Chart 4

The chart above shows Starwood Hotels (HOT) with a Bearish Price Objective of 53. Working from right to left, the most recent P&F buy signal occurred with the breakout and new high above 65. Working right from this Bullish Alert Column, we can see that the very next column produced a P&F sell signal with a Double Bottom Breakdown. This column, which reversed the most recent buy signal, becomes the Price Objective Column. It measures 12 columns. We multiply this amount by the box size and 2/3 of the reversal amount to find the Extension Estimate (12 x .50 x 3 = 12). Subtracting this number from the high of the Price Objective Column yields a Bearish Price Objective of 53.

StockCharts.com Price Objectives - Chart 5

The chart above shows JDS Uniphase (JDSU) with a Bearish Price Objective of 18.50. Working left, we can see that the stock produced its most recent P&F buy signal with the breakout and surge to 29. The column that produces the next P&F sell signal will then become the Price Objective Column. The sell signal does not have to erase all the gains of the prior buy signal column. All we need is a P&F sell signal to reverse the buy signal. This sell signal triggered with the Double Bottom Breakdown three columns later. The Price Objective Column measures 8 boxes. Multiplying by the box size and 2/3 the reversal amount yields the Extension Estimate (8 x .50 x 2 = 8). Subtracting this reversal amount from the top of the Price Objective Column gives us the Bearish Price Objective (26.50 - 8 = 18.50).

Bullish Reversal Method

Before starting, it is important to make sure the current chart is on the P&F buy signal (bullish alert). This means the most recent signal is a bullish Double Top Breakout and the chart shows a Bullish Price Objective.

First, working from right to left, find the most recent Bearish Alert Column. This is the column of O's that produced the most recent P&F sell signal or Double Bottom Breakdown. The column of X's next to this column becomes the Price Objective Column.

Second, calculate the Extension Estimate and add this to the low of the Price Objective Column. Count the number of filled boxes in the Price Objective Column, multiply by the box size and then by the reversal amount (typically 3). Add this Extension Estimate to the low of the Price Objective Column to determine the Bullish Price Objective.

StockCharts.com Price Objectives - Chart 6

The chart above shows Goodyear Tire (GT) with the Bullish Reversal Method used to obtain a Bullish Price Objective of 17.50. This is two points lower than the breakout method because the Price Objective Column is shorter (5 versus 6) and starts from a lower level (10 versus 10.5). Once a bullish alert or basic P&F buy signal is in force, find the preceding bearish signal or Bearish Alert Column. The next column of X's to the right is the Price Objective Column. Multiply the column length by the box size and the reversal amount to find the Extension Estimate (5 x .50 x 3 = 7.5). Add this to the low of the Price Objective Column for a Bullish Price Objective based on the reversal method (10 + 7.5 = 17.50).

Bearish Reversal Method

Before starting, it is important to make sure the current chart is on the P&F sell signal (bearish alert). This means the most recent signal is a bearish Double Bottom Breakdown and the chart shows a Bearish Price Objective.

First, working from right to left, find the most recent Bullish Alert Column. This is the column of X's that produced the most recent P&F buy signal or Double Top Breakout. The column of O's next to this column becomes the Price Objective Column.

Second, calculate the Extension Estimate and add this to the low of the Price Objective Column. Count the number of filled boxes in the Price Objective Column, multiply by the box size and then by 2/3 the reversal amount. Subtract this Extension Estimate to the high of the Price Objective Column to determine the Bullish Price Objective.

StockCharts.com Price Objectives - Chart 7

The chart above shows JDS Uniphase with the Bearish Reversal Method used to obtain a Bearish Price Objective of 20.50. This objective is two points higher than the breakout method because the Price Objective Column starts at a higher level. The height of the columns just happens to be equal. After moving left to find the P&F buy signal or Bullish Alert, we can identify the next column of O's as the Price Objective Column. This column is 8 boxes high. Multiplying this height by the box size and 2/3 the reversal amount produces an Extension Estimate of 8 (8 x .50 x 3 = 8). Subtracting this amount from the high of the Price Objective Column gives us a Bearish Price Objective of 20.5 (28.5 - 8 = 20.5).

Preliminary Price Objectives

A Bullish or Bearish Price Objective is considered Preliminary when the Price Objective Column is the last column on the chart. This means that the height of the Price Objective Column is not yet fixed and subject to change. The height of the last column does not become fixed until there is a three box reversal. Keep in mind that it is possible to have a three box reversal without reversing the bullish or bearish P&F signal. The number of X's in a column is not fixed until a column of three O's appears. Likewise, the number of O's is not fixed until three X's form the next column. The preliminary is removed once the height of the column becomes fixed.

The chart below shows Merck (MRK) with a Preliminary (Prelim.) Bearish Price Objective of 26 because the last column of O's is also the Price Objective Column. The column is currently 11 boxes and not yet fixed. Further weakness would call for more O's to define lower prices. As the chart now stands, it would take a move to 33.5 to warrant a 3-box reversal and new column of X's. This would FIX the length of the Price Objective Column.

StockCharts.com Price Objectives - Chart 8

The chart below shows Corning (GLW) with a Preliminary (Prelim.) Bullish Price Objective of 34.50 because the last column of X's is also the Price Objective Column. The column is currently 11 boxes high and still subject to change. It cannot get shorter, but it can extend if prices continue higher before there is a three box reversal. A move to 21.5 would forge such a reversal and FIX the column height. Such a 3-box reversal would not, however, reverse the Triple Top Breakout signal.

StockCharts.com Price Objectives - Chart 9

Met Price Objectives

Once a stock's price reaches its price objective, the word "Met" appears next to the price objective. After an objective has been met, a new price objective will not appear until the stock reverses enough to generate a new bullish or bearish alert column on its chart. The chart below shows Discover Financial Services (DFS) with a "Met" Bullish Price Objective.

StockCharts.com Price Objectives - Chart 10

Conclusions

P&F Price Objectives provide chartists with a general price target based on the vertical length of the Price Objective Column. The longer the Price Objective Column is, the higher or lower the Price Objective. Price Objectives based on the Reversal Method, Breakout Method or any other method should be taken with a grain of salt. Consider these targets as broad guidelines. Securities will not always reach their targets. Some will even reverse course and trigger conflicting P&F signals before reaching their target. A P&F signal and a target are simply the starting point for analysis. Conditions change and chartists must regularly monitor the unfolding chart formation for evidence that would invalidate their original premise. It is also important to employ other technical analysis tools to confirm or refute a premise. For example, chartists can apply basic trend analysis on a bar chart or use bar chart based indicators to confirm the findings on the P&F chart.

Methods on P&F Charts

StockCharts provides Price Objectives on Graphical and Text P&F Charts. These two charts show the same information, just a little differently. By default, StockCharts.com shows Graphical P&F charts and the Breakout Method for Price Objectives. Once a chart has been chosen, users can toggle between Breakout and Reversal to change the method. This option is found just in the "Chart Scale" section just under the chart. After changing the method and clicking the update button, the Price Objective for the selected method will appear on the chart. See our P&F support article for details other charting options. Click here for a live graphical P&F chart of QQQQ.

StockCharts.com Price Objectives - Chart 11

Suggested Scans

P&F Pattern Alerts can be found at the of the Predefined Scans Page. StockCharts.com provides daily alerts for more than 15 P&F patterns.

Further Study

Dorsey's book starts with the basics of P&F charting and then proceeds to the key patterns. Dorsey keeps his P&F analysis simple and straight forward, much like the work of P&F pioneer A.W. Cohen. As a relative strength disciple, Dorsey devotes a complete chapter to relative strength concepts using P&F charts. These concepts are tied in with market indicators and sector rotation tools to provide investors with all they need to construct a portfolio. There is also a section on using P&F charts with ETFs.

The Definitive Guide to Point and Figure by Jeremy du Plessis lives up to its title and is required reading for the Chartered Market Technician exam. Chartists can learn about 1-box P&F patterns/counts, 3-box patterns/counts and various trading strategies. du Plessis also shows how to apply P&F charting techniques to other analysis tools, such as relative strength and Fibonacci retracements. Plenty of real world examples are provided throughout the text.

Point & Figure Charting
Thomas Dorsey
The Definitive Guide to Point and Figure
Jeremy du Plessis
Buy Now Buy Now


Send us your Feedback!