At Mullooly Asset Management, we use point and figure charts on a daily basis to manage money. Where did this methodology come from? That’s an excellent question, and during the short video above Tom gives the answer.
Point and figure charting is a form of technical analysis invented in the 1890’s by Charles Dow. Dow referred to it as “figuring”. Do you recognize the name Dow? That’s because Charles Dow created the Dow Jones Industrial Average. He was also the first publisher of The Wall Street Journal. Dow was looking for a logical, organized way to track stock price movement. That’s precisely what point and figure charting accomplishes.
Why did Dow want to track stock price movement? Price movement directly represents the imbalance of supply and demand a security has. Supply and demand are what matters most when it comes to any investment. Investments in demand see their prices rise, and with too little demand they see their prices fall creating oversupply.
Point and figure charts plainly illustrate supply and demand through columns of X’s and O’s. Columns of X’s go up, representing demand and rising prices. Columns of O’s go down, representing oversupply, lack of demand, and falling prices.
You now know the origins of point and figure charting!