Regular readers of my newsletters are well-acquainted with Point and Figure (PnF) charts and the clarity they bring to the trading process. The patterns on these charts are both distinct and insightful—each price movement holds significance. This charting style is particularly effective for traders aiming for a positional trading style.

While understanding these patterns is essential, it's equally important to grasp how they vary across different box sizes in PnF charts. For instance, a turtle breakout on a smaller timeframe, like 0.25% (daily), will carry a different weight compared to the same pattern on a larger timeframe, such as 2% (daily). In today’s newsletter, we’ll explore the key patterns to watch across various box sizes on PnF charts.

Understanding Box sizes on PnF charts

First, let us understand the various standard box sizes in Point and Figure (PnF) charts and their applications. In PnF charts, boxes are plotted only when price meets specific movement criteria. For instance, with a box size of 1% (daily) and a 3-box reversal, a new box will only plot if the price moves 1% in the same direction as the existing column (bullish or bearish). If the price reverses by 3 times the box size (1% × 3 = 3% in this case), a new column begins in the opposite direction. This is known as a column reversal. Clearly, box size is crucial because it determines the significance of patterns that appear on the charts.

For stocks, the standard box sizes in PnF charts are 3%, 1%, and 0.25%, all on a daily timeframe, where the timeframe indicates the frequency at which price is checked against the plotting criteria.

• 3% Box Size: A larger box size that requires a significant price move to form patterns, making it suitable for investment perspectives. Patterns on this box size typically imply a holding period of one to two years.

• 1% Box Size: While smaller than the 3% box size, it remains essential for decision-making, mainly suited for holding periods of several months.

• 0.25% Box Size: The smallest box size, leading to numerous patterns and columns, ideal for shorter-term trades with holding periods of a few weeks.

Importance of different patterns on 3%, 1%, and 0.25% box sizes

Let us now understand the different patterns to look at on each of the box sizes.

3% box size: The number of columns on this box size is very less. The setups on this box size are rare but significant. One look at this box size will let us understand the bigger trend of the stock. Patterns such as Double-Top-Buy, Double-Bottom-Sell, Turtle patterns, Traps, and Anchor columns are significant piece of information. Column reversal is significant on this box size.

1% box size: This box size is a positional box size. Therefore, 3 to 7 column patterns are to look for. The basic buy and sell signals are relevant here. Triple top buy, Triple bottom sell, Anchor columns and their follow throughs, broadening and double broadening, triangle patterns are relevant. Turtle patterns are just as important to identify potential consolidation breakouts. PnF Tweezers and trendline breaches are also to look out for.

0.25% box size: This box size forms many columns because column reversals forms very easily. A combination of multi column patterns such as quadruple top buy, turtle patterns, pattern retests etc are important for this box size. Mini tops and Mini bottoms must be looked at in this box size. Column reversals are of very little significance. Anchor columns and its variations are important piece of information.

Simple Multi Timeframe setup

We can combine the learnings of this newsletter to build a simple trade setup.

The conditions are that there should be an important pattern active on the higher box size and we trade breakouts on lower box size.

The stock should be Relatively outperforming a broader market such as Nifty 50.

Double-, Triple-, Quadruple- Top patterns, Traps, Anchor columns or Turtle patterns should be active on 3% and 1% box size.

Turtle breakouts can be used to take trades on 0.25% box size.

Take a look at the charts below for AJANTPHARMA, AUROPHARMA, and VOLTAS. The left panel displays the 3% chart, the top-right panel shows the 1% chart, and the bottom-right panel displays the 0.25% chart. The red box highlights the price action across these box sizes. The 0.25% chart reveals the complete price action, demonstrating that while higher box sizes provided fewer entry opportunities, the lower box sizes offered multiple opportunities. Traders can choose box sizes according to their desired holding period, using lower box sizes for frequent entries based on the overall analysis from the higher box size.

In conclusion, understanding the nuances of Point and Figure (PnF) charts across different box sizes enables traders to tailor their strategies effectively. Larger box sizes, like 3%, provide a broader market view, suitable for long-term investment decisions, while smaller box sizes, such as 1% and 0.25%, reveal more frequent opportunities for shorter-term and positional trades. By combining patterns from various box sizes and focusing on stocks that outperform the broader market, traders can develop a disciplined, multi-timeframe approach. Using these insights, traders can achieve a structured, objective, and adaptable trading strategy that aligns with their individual goals and holding periods.

To learn more on multi-timeframe analysis on PnF charts, you should explore ‘How to Trade Point & Figure’ course as part of TNT One.