[theory6453]

2) In doing some research, I've found a few charts where the stock appears to be entering a Stage 2a, however when I check the stock's P&F chart and look at the preliminary price target it turns out to be bearish... What does this mean? I'm assuming their are conflicting indicators and I should not touch with a ten foot pole.

I'm assuming that you are looking at point and figure chart of a stock with a single digit price and using the traditional scaling method. This will not have much movement as each box will have a very high percentage in the single digits, and it requires a 3 box reversal on the traditional scale. So a huge move is required to add an additional X to the column in the single digits, and so I'd suggest using percentage based scaling on charts with very low values especially, or they'll be looking back to much higher swing highs in order to give a breakout signal, and hence why it's still on a bear signal.

Basically with the traditional scaling method and a low value chart, the P&F breakout signal will come only after a much bigger move, and so the Stage 2A breakout that you are seeing might be quite an early one, which are not always as strong as breakouts from a much more developed Stage 1 base. But I'd suggest learning much more about using point and figure charts before implementing them with your live trades, as they are great, but you need to understand how to read them correctly.

A few of the best books on the subject are The Definitive Guide to Point and Figure by Jeremy du Plessis, which focuses on the price action aspect of them mostly and Point and Figure Charting by Tom Dorsey which focuses on the relative strength and market breadth uses which overlap with Weinstein's method in many ways.

Fantastic. I'm going to put the Dorsey book on my reading list. Sounds like a really good primer for me.

To follow up on P&F, do you have a high-level threshold for P&F where you move from traditional box down to percentage P&F chart? (i.e. - Price > $10 use traditional P&F; Price < $10 use percentage method) Is there an in-between method? Is there a price range where you might look at both.

On an another note, I was re-reading Stan's section on sell stops last night. His advice was to set the stop just below the nearest round number (i.e. - $17 7/8) Now, of course, this was back in the 80s when stocks were tracked in eighths of a point. Do you have a guideline that you follow to adhere to this rule that is more up-to-date? To your point earlier, depending on the price of the stock, $0.12 could be quite significant and maybe there is a tighter rule we could be following now that stocks are traded in much smaller fractions of a point.

I appreciate your patience with all my questions. If there is a thread where either of these questions were already addressed, feel free to point me there.

Cheers!

Sorry also... can you refresh my memory on how to incorporate a log scale into my charts (to analyze large scale declines)... I'm not exactly sure what that is. Thx.