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I have been experimenting with trading using P&F Charts and they seem to be quite useful for identifying patterns. I didn’t locate many threads here on these charts and am somewhat surprised they don’t get more attention, so I am creating this thread so traders can include their own examples and relate their experiences.
I have an example which illustrates their usefulness. I am using the Ninja charts with base period value 1, Box size 1, Reversal 4, and Base period type tick. The chart is the SPY. When it ticks up 1 cent, an x is drawn, and when down 1 cent a 0 is drawn. In an up move “x”s will be drawn until the price back ticks 4 cents, in which case a new bar will be printed. The reverse happens for a down move. Thus an up bar (x) is an up move that didn’t back tick more than 4 cents and a down bar (0) is a down move that didn’t back tick more than 4 cents.
The P&F chart shows an explosive breakout of a triangle which led to a nice up move. While trading, I could easily see the triangle forming minutes before the breakout. I drew the two lines before the false breakout. I could easily see the compression of the range leading to the breakout. There was a false breakout to the downside which increased my confidence that the real breakout would be to the upside. I had already decided I would not take downside breakouts because the moving average was sloping up. The breakout was strong without any retrace. I have included for contrast a 1 minute chart of the triangle. I never would have seen the triangle on a 1 minute chart which I drew much later. The P&F chart really made the pattern obvious.
Since I was trading with Interactive brokers, I used the GOM recorder to record the data so I could draw the P&F charts. One thing to watch out for is that on the charts, the current price isn’t highlighted in the bar, so to see where the current price is you have to look to the price highlighted on the scale to the right. I also put on a Gomi footprint chart with P&F period, and the price on GOMI is highlighted with an orange square. So, it must be possible to write a simple indicator that provides this feature.
I am in the process of building out PnF indicators and what a second pair of eyes to look it over and see if there are mistakes. Once I have them bug free I will post them to the elite download section.
