In technical analysis, Momentum refers to the rate of change at which the price moves. Higher the momentum, faster the price change. This momentum in price is plotted as rapid change in price in one direction. On candlestick charts, this is depicted by Marubozu candles. On Renko charts, this is depicted by Anchor bricks, that is, 10 or more bricks in one direction. On PnF charts, momentum is depicted by an Anchor column. An Anchor column is a PnF column with a minimum of 15 boxes.

On PnF charts, Anchor columns are more meaningful because these are a 3 box reversal charts. To understand the importance of this, let’s say the box size is 1%. This means a brick will plot when price moves by 1% and change in column happens when price reverses by 3*1%, i.e. 3%. When an Anchor column forms, it shows that the price moved in one direction without a reversal of more than 3%. This shows momentum.

Anchor column patterns on PnF charts:

Anchor columns are part of various patterns on the PnF charts. These patterns are Anchor AFT, Anchor FT, T20 pattern, Super pattern, and ABC pattern. This discussion is based on ABC pattern. Specifically, Bullish ABC.

ABC pattern has 3 components to it. “A” stands for Anchor column. “B” stands for breakout from 45-degree trendline. “C” stands for Count (Vertical). These 3 components make the ABC pattern.

ABC pattern is a momentum-consolidation breakout pattern. The aim of the pattern is to trade the consolidation breakout that forms after the Anchor column.

Understanding the components of ABC

We have understood the Anchor column. Let us now understand the other two components of the pattern.

The 45-degree trendline has its own importance on the PnF charts. Think of the chart to be in square shaped. In that case, a line drawn at 45-degree from one corner to another will divide the square in exactly two halves diagonally. A bullish 45-degree trendline will be upward sloping and a bearish 45-degree trendline will be downward sloping.

Because the trendline divides the chart into two halves, it can be said that when the price is above the bullish trendline, there are a higher number of X being plotted than O. This would mean a bullish trend. And when this trendline is breached, that is, the price moves below this trendline, it can be said that the trend is about to change, and more O could be plotted. The same logic goes for the bearish trendline. When the price is trading below the bearish trendline, the trend can be considered to be bearish and that a greater number of O are being plot than X. A breach of bearish trendline could mean change of trend from bearish to bullish. The bearish trendline is plotted from the top of the bullish Anchor column.

Vertical count is used as a target for the price upon breakout from the bearish 45-degree trendline. These can be thought of as targets for the price to move after breakout.

Below is an example of ABC pattern.

Building a setup using ABC pattern

To build a setup on PnF chart, we add an indicator that can filter the trend for us. The indicator is usually Super Trend, type of Moving average, or a combination of both the indicators, i.e. MAST indicator. We use MAST indicator for trading ABC pattern. The importance of MAST indicator is explained further.

If price is trading above MAST indicator and the MAST cloud is Bullish, the trend is considered to be Bullish.

If price is trading below MAST indicator and the MAST cloud is bearish, the trend is considered to be Bearish.

Bullish ABC pattern must be traded in the direction of the trend. That is, bullish ABC should be traded above the MAST indicator and when the MAST cloud is bullish.

There are two Stop-losses that can be placed while trading ABC, one is the lowest O of the pattern. This can be thought of as an affordability stop-loss. The other level is the low of the Anchor column. This is the pattern stop loss. Pattern SL acts as pattern negation level.

Increasing the accuracy of the setup

In my experience, ABC patterns’ accuracy improves when the breakout is caused by a bear trap pattern. Also, the accuracy improves when the breakout column forms inside the MAST cloud.

Observe the below chart of OLECTRA. Observe the price made a bear trap within the MAST cloud. Observe how the price moved after the breakout

ABC is just one of the momentum patterns on PnF charts. I have explained other patterns in my course on PnF charts called How To Trade Point and Figure. Over the years, I have come to appreciate this charting method and found that these charts helped me fine tune my trading. Although it wasn’t easy to master them, you can get a head start by opting for the course where I explain the patterns, where to spot them and how to create your own PnF setup using these patterns. Do check it out 👇🏻👇🏻👇🏻👇🏻