POINT AND FIGURE LIBRARY

The Chart Formations
The High Pole

Earl Blumenthal, another famous point & figure chartist, developed this signal. The pattern is formed when a column of Xs exceeds the previous column of Xs by at least 3Xs and then gives up more than half of its total gains in the next column of Os. It is less of an actual sell signal than a warning signal. I do not pay much attention to it when the trend is up, but in a downtrend it can be very effective in picking up bear market rallies on the point or during the course of failure. Look how this formation picked up the failure of the bear market rally in the NASDAQ Comp in April 2002.

Count the number of Xs in the substantial bear market rally from late February to 12 March 2002. It was 12 . The sell signal occurs on the sixth O (1820), at which point the market has given up 7 out of the 12 Xs. Thereafter the NASDAQ plunges to new lows for the year. The biggest drawback with this formation is that there is no close point at which to place a stop loss so the risk/reward ratio is usually poor.

A low pole in an uptrend doesn’t seem to have the same sort of significance as the high pole in a downtrend so I have not shown it.

Next: The Bullish and Bearish Shakeout

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