(Trading) Point-And-Figure-Charting-putational-Methodology-And-Trading-Rule-Performance-In-The-Sp500-Futures-Market.pdf

ARTICLE IN PRESS + MODEL
International Review of Financial Analysis xx (2006) xxx–xxx
Point and Figure charting: putational
methodology and trading rule performance in the
S&P 500 futures market
⁎
John A. Anderson a, Robert W. Faff b,
a Queensland University of Technology, Australia
b Department of Accounting and Finance, PO Box 11E, Monash University, Victoria 3800, Australia
Received 4 December 2002; accepted 10 August 2004
Abstract
This paper empirically contributes to the existing trading rule literature by providing a methodology for
the calculation of Point and Figure charts using ultra-high-frequency data and tests trading rules using eight
objective, pre-defined trading rules on S&P 500 futures contracts traded between 1990 and 1998. To assess
the robustness of reported profits, a bootstrapping adjustment was conducted to determine the forecasting
power of the PF trading rules. The results producing mixed statistical significance with some rules proving
significant while many others were not.
© 2006 Elsevier Inc. All rights reserved.
JEL classification: C52; C61; C63; G10
Keywords: Point and Figure; Trading rules; Ultra-high-frequency data; Technical analysis; Futures markets
1. Introduction
Point and Figure charting is a technical analysis technique in which time is not represented on
the x-axis, but merely price changes (independent of time) are recorded via a series of ‘X’s for
increasing price movements and ‘O’s for decreasing price movements. Trading rules are then
defined over particular patterns in the ‘X’s and ‘O’s—somewhat analogous to conventional
charting. As such, ‘Point and Figure’ concentrates solely on changes in asset prices, regardless of
the time required to produce such price movements. This means that data, particularly ultra-high-
⁎ Corresponding author. Tel.: +61 3 9905 2387; fax: +61 3 9905 2339.
E-mail address: Robert.******@ (. Faff).
1057-5219/$ - see front matter © 2006