What is a Point & Figure Breakout?
The Point & Figure Breakout serves as a primary buy signal to the investor. Beginning with a column of Xs advancing, followed by clearance of the preceding column of Xs, by a single box. In brief, the bullish breakout reflects an important seismic shift in market emotion. Uncomplicated, yet of immense worth to the investor.
Conversely, the bearish breakdown is to the downside, a sell signal.
Psychology of the Point & Figure Breakout
Clearance of the preceding column of Xs by one box signals a break of resistance. The Point & Figure breakout denotes more buyers in the market, than sellers. In short, demand has exceeded supply. The financial instrument, such as a stock or commodity, is viewed as more desirable to own given the breakout. Hence, the breakout serves as a buy signal for that instrument.
P&F Breakout Patterns
Point & Figure breakouts are limited to five patterns. In order of frequency, and increasing rarity, they are: Double Top, Triple Top, Quadruple Top, Bullish Triangle and the Bullish Catapult.
The Double Top is the purest P&F breakout pattern. To activate the buy signal, a mere one box break above the preceding X column is all that is needed. Simple yet powerful!
An important breakout since it provides the trigger for other more complex patterns. Consequently, we have a whole page devoted to the Double Top.
An evolution of the Double Top best describes the Triple Top Point and Figure breakout. One box clearance of two preceding columns of Xs, both across the same level, confirms the Triple Top.
A growing library of past examples, plus the basics, such as stop-loss strategy and price objectives, can be found on the Triple Top's page.
The Quadruple Top is an evolution of the Triple Top. The pattern's name basically says it all! The advancing column must exceed the three preceding columns of Xs by one box. The three columns are all across the same level. Therefore, a resistance ceiling is in place, until it breaks that is, via the P&F breakout.
Useful case studies from across the market are explored on the Quadruple Top's page. Additionally, psychology and trading approach are given thought, plus the basics.
The Bullish Triangle appears as a contracting range on the Point & Figure chart. The range is fairly symmetrical across its mid-point. The Point & Figure breakout from the triangle, the buy signal, occurs through confirmation of a Double Top.
Awareness of the pattern's volatility, along with early identification clues, plus so much more, is covered on the Bullish Triangle's page.
Lastly, the Point & Figure breakout with the raciest name, the Bullish Catapult. The catapult pattern consists of a Triple Top or Quadruple Top, incorporating a Bull Trap, followed by a Double Top to activate the bullish breakout. Sounds somewhat convoluted, but the Bullish Catapult quickly sinks in once the more basic patterns are understood.
Plenty of illustrated examples, to aid identification in the wild, are laid out on the tutorial page for the Bullish Catapult.
The Point & Figure Breakout, final thought
Dictionary definition of the word breakout:
"a violent or forceful break from a restraining condition or situation"
That series of words should be at the forefront of a trader's mind when following a Point and Figure breakout. Generally, the more violent the break through resistance, in the form of volume, the greater the rally. The restraining condition is no more. In short, resistance turns into support, working as an advantage to the investor going forwards.