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Lesson 5 of 6
Hey everyone, welcome back to our Point & Figure chart series here at Interactive Brokers. Last time, we looked at how to trade trend reversals and pullbacks using these charts. Now we’re digging into breakouts and those classic patterns—like the bull (or bear) flag—but applying them to Point & Figure so we can filter out the usual noise.
We used Tesla as a case in point. It kept hitting around $260, forming a clear resistance zone. Normally you’d see that on a candlestick chart too, but in Point & Figure, it’s especially clear how buyers keep stepping in at higher prices—a big clue you might have an ascending triangle on your hands. Instead of guessing when that breakout could happen, you can just wait for, say, three or four X’s above that resistance level to confirm it.
You don’t have to worry about timing. If it takes a day or a month for those X’s to print up there, you stay patient and only jump in when the price actually breaks out.
Then we zoomed in on Apple to show how a period of compression (or lower volatility) can lead to a breakout. You had a big run of X’s, a pullback of O’s, and then each subsequent column keeps getting smaller and smaller, hinting volatility is tightening. In traditional charting, you might see this as a wedge or triangle. Here, you just ignore all the intraday noise and wait for the next meaningful price move—no matter how long that takes.
The real advantage of using Point & Figure is that it gets you out of dead zones. If Apple or Tesla spend weeks or months just chopping around, you won’t get tricked into a bunch of false moves because the chart won’t even update until price hits your chosen box size. That means less stress and more clarity on where the real breakouts might occur.
So, if you’re a breakout trader—or someone who just wants a more streamlined look at those classic patterns like ascending triangles, bull flags, or wedges—Point & Figure can be a game-changer. It’s all about focusing on actual price moves and ignoring the rest.
That’s it for this lesson on breakouts. Stay tuned for more Point & Figure insights right here at Interactive Brokers!
Michael Nauss, CMT
Substack: www.statsedgetrading.com
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