THE HORIZONTAL COUNT
posted under
Philosophy of Technical Analysis
by ceecabolos
One principal advantage of the intraday 1 box reversal chart is the ability to obtain price objectives through use of the horizontal count. If you think back to our coverage of bar charts and price patterns, the question of price objectives was discussed. However, virtually all methods of obtaining price objectives off bar charts were based on what we call vertical measurements. This meant measuring the height of a pattern (the volatility) and projecting that distance upward or downward. For example, the head and shoulders pattern measured the distance from the head to the neckline and swung that objective from the break of that neckline.
Point and Figure Charts Allow Horizontal Measurement
The principle of the horizontal count is based on the premise that there is a direct relationship between the width of a congestion area and the subsequent move once a breakout occurs. If the congestion area represents a basing pattern, some estimate can be made of the upside potential once the base is completed. Once the uptrend has begun, subsequent congestion areas can be used to obtain additional counts which can be utilized to confirm the original counts from the base. (See Figure 11.6.)
The intent is to measure the width of the pattern. Remember we're talking here of intraday 1 box reversal charts. The technique requires some modifications for other types of charts that we'll come back to later. Once a topping or basing area has been identified, simply count the number of columns in that top or base. If there are 20 columns, for example, the upside or downside target would be 20 boxes from the measuring point. The key is to determine which line to measure from. Sometimes this is easy and, at other times, more difficult.
Usually, the horizontal line to count across is near the middle of the congestion area. A more precise rule is to use the line that has the least number of empty boxes in it. Or put the other way, the line with the most number of filled in x's and o's. Once you find the correct line to count across, it's important that you include every column in your count, even the ones that are empty. Count the number of columns in the congestion area and then project that number up or down from the line that was used for the count.
Point and Figure Charts Allow Horizontal Measurement
The principle of the horizontal count is based on the premise that there is a direct relationship between the width of a congestion area and the subsequent move once a breakout occurs. If the congestion area represents a basing pattern, some estimate can be made of the upside potential once the base is completed. Once the uptrend has begun, subsequent congestion areas can be used to obtain additional counts which can be utilized to confirm the original counts from the base. (See Figure 11.6.)
The intent is to measure the width of the pattern. Remember we're talking here of intraday 1 box reversal charts. The technique requires some modifications for other types of charts that we'll come back to later. Once a topping or basing area has been identified, simply count the number of columns in that top or base. If there are 20 columns, for example, the upside or downside target would be 20 boxes from the measuring point. The key is to determine which line to measure from. Sometimes this is easy and, at other times, more difficult.
Usually, the horizontal line to count across is near the middle of the congestion area. A more precise rule is to use the line that has the least number of empty boxes in it. Or put the other way, the line with the most number of filled in x's and o's. Once you find the correct line to count across, it's important that you include every column in your count, even the ones that are empty. Count the number of columns in the congestion area and then project that number up or down from the line that was used for the count.
Comment Form under post in blogger/blogspot