Why P&F is a Great Tool
As a trader, you have developed a set of tools that work for you. And let’s say that they work most of the time – except when the market goes flat and boring. How do you ignore flat and boring? Point & Figure! P&F is always active when the market is active, and does not register when the market is quiet. That is, only market movement beyond a certain noise level counts, making the filter non-linear. Additionally, many P&F chartists change their box heights depending on the price level, making it adaptive. Would you have ever expected Charles Dow to invent an adaptive non-linear smoother?
It gets better: P&F is asymmetric. As you are rising, you keep making x’s each time you achieve a new box level. But you don’t start a down column (making o’s) until the price goes down by your pre-determined reversal level (traditionally 3 boxes). That is, at a given point in an up move you only need 1 up-box to make another x, but 3 down-boxes to make an o. The combined effect of the noise filtration , adaption and asymmetry means that a a P&F trading tool should make you money. That helps to explain its popularity and longevity.