Identifying Basic Patterns and Trends

Hey everyone, welcome back to the next segment of our Point & Figure chart series here at Interactive Brokers. We’ve already covered why these charts are important and how the X’s and O’s get plotted. Now let’s dive into what you can actually do with them—namely, how to spot trends, support/resistance levels, and basic patterns like double bottoms.

Spotting Trends (Uptrends & Downtrends)

• Downtrends are super easy to identify because each new column of X’s (up moves) is lower than the previous column of X’s. You can literally connect those lower highs and immediately see prices stepping down.
• Uptrends work the same way in reverse: each new column of O’s (down moves) bottoms out a bit higher than the last column of O’s, so you know buyers are stepping in at higher prices each time.

This clarity is one of the coolest things about Point & Figure charts. By ignoring all the tiny intraday ticks, you see these overarching moves much more clearly.

Finding Support & Resistance

• With Point & Figure, once you’ve set your box size and reversal amount, you can zoom out and quickly spot those major levels. For example, if Apple kept hitting roughly $195 before dropping into another column of O’s, that’s a clear sign of resistance at $195.
• Once you see those X’s start printing above $195, that might be a breakout signal—no more sellers hanging out at that price.

Because the chart only updates when price moves by your specified box size, all the little noise is stripped away. You’re basically seeing where real buyer and seller interest has kicked in.

Classic Patterns (Double Tops & Double Bottoms)

• Double Bottom: You’ll see two columns of O’s come down to pretty much the same level before the price bounces back up. That’s a strong sign that buyers are defending that area, making it a potential place to enter or add to a position if you’re bullish.
• Double Top is the opposite: two columns of X’s run up to around the same level and then retreat, hinting that sellers are stepping in repeatedly at that price.

So that’s the gist. Point & Figure charts help you zero in on the big moves and filter out the static. If you’re into trend trading, pattern recognition, or just want a clearer view of support and resistance, they’re a phenomenal tool to have in your TWS arsenal. Stay tuned for more advanced setups and patterns in the upcoming lessons here at Interactive Brokers. See you next time!

Contributor

Michael Nauss, CMT

Substack:  https://michaelnausscmt.substack.com/

Site:  www.statsedgetrading.com