Vertical
Price Objective and Horizontal Price Objective. This technique is used when evaluating
the risk/reward ratio of a stock. It is imperative that you evaluate
the risk/reward ratio when investing. This topic is discussed several times in the book "Point and Figure Charting
3rd Edition." Price objectives are NOT set in stone,
but are a good guideline in determining how far a signal can carry
a stock. There are two types of counts; the Vertical Price Objective
and Horizontal Price Objective. With each type you can determine
a bullish and bearish price objective. Each are described below.
The Vertical Price Objective.
You will hear people ask "What is the PO?" - meaning,
"What is the Price Objective?". Typically we use the
Vertical count when evaluating price objectives. We prefer to use the Horizontal count when a stock has built a large base. This is how they are calculated.
For
the Bullish Vertical Count:
Look to the column that has the first buy signal off the bottom and count the number of X's in it. You wait for the reversal down into a column of O's before counting the number of X's up to ensure there will be no more X's added to the column.
Once you have counted the X's, multiply by 3 (for the three box
reversal method) and then multiply that product by the value
per box.
Add this result to the bottom X
There are 10 X's in the first column of X's from
the LAST sell signal.
Multiply 10 times the three box reversal method (3) 10 x 3 =
30
The box size is 1 (we will cover box sizes in a minute) so the
calculation now is 30 x 1 which equals 30.
Add 30 to the bottom X of the column you counted 30 + 21 = 51.
51 is your price objective.
Let's break it down piece by piece.
1:
Find the last sell signal on the chart
2:
Find the column of X's that create the buy signal after the last
sell signal.
3:
Determine if the run in the column of X's has been terminated
by a reversal.
4:
Count the column of X's with the buy signal.
5:
Determine the price level at the bottom of the column of X's.
6:
Start your calculation.
Formula: (# X's)(3)(box size)
+ bottom X = PO
There were 10 X's in the column.
10 x 3 (for the three box reversal). = 30.
30 x 1 (box size) = 30.
30 + 21 (bottom X at the $21 level).= 51
