KC Zieg on Point and Figure Buy and Sell Signals

There are eight basic buy and eight basic sell signals used in point and figure charting. The first two buy signals, referred to as the Simple Buy Signals and comprised of three or four columns, play a dual role of determining the price level at which shorts must be covered as well as signaling the opportunity for the establishment of new long positions. The more complex buy signals, all comprised of five or more columns and all containing one or more of the simple signals within their structure, permit the establishment of long positions but are not used to close out shorts for short positions are always covered on simple signals.

The Simple Sell Signals covering three or four columns always signal the need for liquidation of long positions as well as suggest the possibility of a short sale.

The more complex sell signals, more correctly termed short-sale signals, contain more columns of reversals and one or more of the simple sell formations. These complex formations are not used to close longs, for the simple signals accomplish this but are strong indicators that the short side is the correct side of the market to trade.

Statistics are provided [in the chapter] to show the frequency of signal occurrences, the duration of commitments, and the profitability in stock trading when fifteen of the sixteen simple and complex formations are used as entry criteria.

In answer to the question, "Which signal is best?" the trading media is important. Commodity traders have little or no choice of formations because only B-1, B-2, S-1, and S-2 signals occur with any frequency. But security traders have all sixteen formations available.

The one or more formations best suited for a security trader is dependent on the amount of investable funds available and the desired holding period of the open trade. Only through a careful analysis of these two personal requirements coupled with a searching analysis of the statistics cited can the most appropriate formations be discovered.

KC Zieg, Point and Figure Commodity and Stock Trading Techniques (Chapter 3 Summary and Conclusion)