Point and figure breakout
BreakoutIntermediate
Point and figure charts record price only when it moves by a set box size, and they ignore time. A column of X's rises. A column of O's falls. A breakout is a new column that exceeds a prior column by the reversal amount. Classic bullish patterns, such as a double-top breakout, buy that new high in the X column.
Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.
- Rules
- Pick a box size, often a price increment or a percentage, and a reversal, commonly three boxes. Buy a double-top breakout when a column of X's exceeds the prior X column. Place a stop one box below the pattern low or at the reversal point. Sell a double-bottom breakdown in the mirror image. Recalculate only on closing prices if the test is end-of-day.
- Where AI fits
- AI can generate the columns from a stated box and reversal so the pattern is not a hand drawing. It can test one box method, such as average-true-range boxes, and keep percentage boxes as a separate system. Switching box size after seeing which chart 'worked' invalidates the test.
- Markets
- Stocks and futures with prices that suit a stable box size. Very low-priced names need a different box.
- Timeframes
- The chart is price-driven. Signals are usually reviewed daily.
- Risks
- Box size is the whole strategy. A smaller box recreates the noise the method claims to remove. Point and figure ignores time, so a stale breakout looks the same as a fresh one. Historical high-low data, rather than closes, changes the columns.