Using the Point & Figure University
How do I get started?
The best way to get started with these lessons is to begin by reading the resource links to the left of the page - History,
Anecdotes, etc. Then begin with Lesson 01 and work your way through the remaining lessons.
What if I want to start in the middle of the lessons?
While the Lessons are designed to go in sequence, this website is an excellent resource for refining your skills in a
particular area so feel free to go back and review lessons out of order.
What is the Resources section?
The Resource section is designed to highlight just some of the Point & Figure tools available at
www.dorseywright.com that were covered in the particular lesson.
Can I do the exercises more than once?
The exercise portion is designed to not only test your knowledge about the principles taught in the lesson
but also to be a continued educational source. Please feel free to reference the exercises numerous times as the
answers provide insightful tidbits of information into the methodology.
What other educational resources does Dorsey, Wright provide?
Education is a mainstay of Dorsey, Wright & Associates so we offer a number of other educational resources for free
or nominal charges. You can take more extensive lessons in a number of different facets in the methodology by
going to www.dwaglobaluniversity.com and enrolling as a student. Through a self study format,
you will learn more about the Point & Figure methodology through a variety of mediums from video lectures to online
exercises to the ability to e-mail a teacher with questions. Also with a three week free trial at
www.dorseywright.com you can watch a 8 part video series to learn more
about the methodology.
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About the Point & Figure Methodology
Why isn't volume included in the chart?
We try and stick to the KISS principle of keeping it simple. With respect to volume, if that volume is buying pressure
it will force the price of the stock up and this will be reflected in the chart. Conversely, if the high volume is
selling pressure, it will force the price of the stock downward and once again will be reflected in the price. And
the Point & Figure chart is simply a logical way of recording price.
What do the different color X's and O's mean?
On the Point & Figure chart, you will sometimes notice different color X's and O's. The red O's represent action
that occurred on the previous day while the green X's indicate action that occurred on the previous as well. Also,
lower case blue X's and O's indicate intraday chart activity.
How should I interpret charts when different point scales are used?
The general rule of thumb that I tend to use for stocks, with relation to changing box size, is to only do
it "when necessary". For example, if you have a stock that has spiked straight up numerous boxes without a pullback,
it can be helpful to lower the box size to .50 (or in half) in order to see where there may be nearer term support
or resistance. This helps for shorter term profit-taking/stop loss points. But as a general rule, if the main
default chart is orderly with discernible support and resistance and good back and forth action, I rely on that
chart first. I will say to get a longer term view of support and resistance; it is also helpful to use the 2 pt
per box chart in order to get greater perspective. Again, for general purchase and sell decisions, use the main
default chart with stocks unless the chart shows big swings in X's or O's, unless you want to be very short term
trading oriented, then bumping the box size down can help with that too. But generally speaking, the default chart
tells you plenty.
What is the most important chart pattern to watch for?
No one pattern is necessarily more important than another. Each pattern should be taken in the context of the overall
chart. For instance, if Stock A breaks a triple top but that breakout occurs below the bearish resistance line and
the relative strength chart is negative, and another stock, Stock B, breaks a third consecutive double top, has
positive relative strength, and is trading above the bullish support line, we'd say the breakout in Stock B was
stronger than that of Stock A. It is all a matter of stacking as many odds of success in your favor as possible.
Can the same charting principles be applied to foreign markets?
Yes. In fact, our website, www.dorseywright.comfollows the Point & Figure
charts on over 35 different markets and continues to expand. The same principles of relative strength and bullish percents
are also applied.
The stock I was evaluating had negative relative strength but was on a buy signal and in a positive trend. How can
The relative strength chart is a measure of how a stock is performing versus an index. The Point & Figure chart is a
measure of absolute price movement. In a situation like this, what is happening is that the market in general is
experiencing a nice upmove carrying all stocks with it, much like a rising tide will carry all boats. However,
a relative comparison of the stock to the base index can show that the stock isn't keeping pace with the
overall market. Let's say that the market rallies 20% over a period of time and our stock with negative relative
strength rallies 12%. The Point & Figure chart could well be positive but the relative strength would have correctly
pointed us in the direction of other stocks that were likely to outperform the market.
Regarding the NYSE Market indicators, does that include all securities that trade on the NYSE, including closed
The NYSE market indicators, such as the NYSE Bullish Percent, does not include closed end funds.
Would it make sense to go to 100% cash when the NYSE Bullish Percent goes to O's?
This question really involves risk and the management of risk. Risk cannot be eliminated or even minimized. It can
only be managed or shifted. If one tries to eliminate the risk of a drawdown, the risk of not generating enough
profits to meet one's financial goals is the result. The fear of drawdowns should be secondary to the fear of not
following a proven strategy. Of course, any strategy must take into consideration the effect the volatility will
have on the investor. A balance must be struck between a strategy that generates high returns and a strategy that
allows the investor to stay in long enough to reap the benefits. A proper evaluation of risk involves weighing the
probabilities of the various outcomes. It also involves the realization that where there is no risk, there is no
reward. Adhering to a proven trend-following approach gives the investor a very high probability of positive
outcomes over time. Our goal is to manage risk, and allow volatility to work in our favor over time.
There are several sector bullish %'s that have reversed up, yet when I go to the sector RS it is negative. This is
confusing. Can you please clarify.
When a sector bullish percent reverses up from low levels but the sector relative strength is negative, it presents
a trading opportunity. The sweet spot with respect to sectors, and therefore more for investment purposes, are those
sectors that see their bullish percent reverse up from low levels and also have Favored status or strong relative strength.
With sectors that reverse up from oversold conditions and don't have strong relative strength or Favored status, we
would start out with a trading posture, until we see whether the Favored status improves. But you still want to
gain exposure to these areas, just more in an underweighted condition vis a vis Favored sectors.
I am interested in adding some positions to commodity ETF's. I am still trying to get my hands around the different
ETF commodity choices. If you could, please steer me in the right direction.
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As the ETF universe continues to explode, so do the possibilities with respect to commodity based ETFs. At
publication, there are a number of commodity based ETFs available. Besides the specific commodity ETF's -- IAU, SLV,
GLD, and USO, there are three (so far) that allow you to play commodities as a basket based on an underlying index.
They are as follows:
- DBC (Deutsche Bank Commodity ETF, based on DBLCIX commodity index)
- DJP (iPath exchange traded notes from Barclays, based on DJAIG commodity index
- GSP (iPath exchange traded notes from Barclays, based on GN/X commodity index)
As far as which one to choose, you have to take into effect how much energy exposure you are trying to gain through
the use of the ETF or ETN. In the case of the GSP, the Goldman Sachs Commodity index, which it is based on, has a
weighting of roughly 75% energy futures. So it is a big play on Crude, etc. The DJP, based on the Dow Jones AIG
Commodity index, has less exposure in energy, more around 33%, so it is a little better diversified. Lastly, the
new DBC is made up of only 6 underlying commodities, so it is narrower in scope, and still heavily weighted in
energy. The six commodities are Crude, Heating Oil, Gold, Aluminum, Corn and Wheat. And the Crude and Heating
Oil exposure amounts to roughly a 55% weighting.
More Information on Dorsey, Wright & Associates
What other educational resources does Dorsey, Wright provide?
I would like to know if Dorsey, Wright & Associates has a service that gives us the charted Point figure charts
and bullish percentage indicator or recommendations based the indicators?
Yes, we do offer a technical charting service along with research reports. You can sign up for a free three-week
trial by going to www.dorseywright.com. There is a choice of either signing
up as an individual or a professional. Choose the one that applies to you.
I would like to know if Dorsey, Wright & Associates manages money or has products I can invest in.
Dorsey, Wright & Associates offers a variety of different vehicles to take advantage of our management services.
- Mutual Funds:
- Arrow DWA Balanced Func (DWAFX)
- Arrow DWA Tactical Fund (DWTFX)
- Exchange Traded Funds:
- PowerShares DWA Technical Leaders (PDP)
- PowerShares DWA Developed Leaders (PIZ)
- PowerShares DWA Emerging Leaders (PIE)
- PowerShares DWA Smallcap Leaders (DWAS)
- UNit Investment Trusts withg First Trust
- Dorsey, Wright RS Dividend Trust
- Dorsey, Wright RS Top 50 Trust
- Dorsey, Wright RS International Trust
- Separately Managed Accounts
- Numerous account choices, from "Systematic RS" to "Global Macro"
What books are available by Dorsey, Wright & Associates and Tom Dorsey?
Point & Figure Charting, 4th Edition
Tom Dorsey's Trading Tips
Thriving As a Stockbroker in the 21st Century
Keep Pedaling Zen Farmer: Dorsey, Wright Essays on Investing
Finding Religion Among the Rapids: Dorsey, Wright Essays on Investing
Back to the Futures
Commodity Strategies, High Profit Techniques for Investors & Traders
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