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Among the many questions that confront a student of the market one stands out as

the most persistent and fundamental.

After initiating a trade, how far can the price be expected to move?

Answering this question transforms speculation from a game of chance into a

strategic campaign with a defined objective.

While many methods attempt to provide an answer, most rely on subjective

patterns or historical averages.

Richard Wyckoff, however, approached this problem with the logic of an

He sought a scientific method to measure the market's potential, a way to

quantify the force being built up during a period of consolidation in order to

project the extent of the subsequent move.

He found his answer in the point and figure chart.

To the modern analyst, the point and figure chart is often associated with

identification of complex patterns.

But Wyckoff's use of this tool was fundamentally different and far more

He was not interested in fanciful geometric shapes, which he considered

impractical notions.

Instead, he used the point -and -figure chart for a singular, powerful purpose,

to measure the cause in order to forecast the effect.

This approach is a direct application of his second fundamental market law, the

law of cause and effect.

This law states that every significant market move, the effect, must be

by a period of preparation, the cause.

The point -and -figure chart, by its unique method of construction, provides

clear visual representation of this cause being built and a method for

its potential.

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The law of cause and effect is the theoretical foundation upon which

point and figure method rests.

The principle is simple yet profound.

The length of time a stock spends moving sideways within a trading range and the

volume of shares traded during that time builds the cause for the subsequent

move. A long period of accumulation

where the composite man is quietly absorbing shares, builds the cause for a

significant and sustained uptrend.

Conversely, a long period of distribution where the composite man is

stock into the market at a top builds the cause for a significant downtrend.

While a vertical line chart which plots price against time shows the duration

and volume of this preparation, the point -and -figure chart isolates the

action into a format that makes the cause measurable.

The horizontal dimension of a point -and -figure chart represents the extent of

the cause.

Each column of X's or O's within a consolidation area is a unit of

The wider the horizontal formation, the greater the cause and therefore the

greater the potential effect, which will be expressed as a vertical price move.

Wyckoff discovered that by simply counting the number of columns in a

point -and -figure formation,

He could derive a reasonably accurate projection of the minimum price move to

expected once the stock breaks out of that formation.

This transformed the process of setting price targets from a subjective guess

into a logical, evidence -based calculation.

It allowed the trader to assess whether a potential trade offered a reward that

was at least three times the risk, a core tenet of his methodology.

To properly apply Wyckoff's counting method, one must first understand how to

construct the charts exactly as he did.

His method differs from many modern interpretations and its specific rules

essential for accurate analysis.

He primarily used two types of charts in combination.

The one -point chart for detailed, short -term analysis and the three -point

chart for a broader perspective on the more significant trends.

Let us first examine the construction of the one -point chart.

This chart takes no account of time or volume.

It is a pure representation of price movement.

It records the movement of a stock from one full figure to the next, such as

from 35 to 36, or from 35 down to 34.

All fractional movements are disregarded.

The chart is plotted on cross -section paper.

An upward movement is plotted using X's.

and a downward movement is plotted using O's or, for simplicity in our examples,

with numbers.

To begin a plot, you start with the current price.

For example, if a stock is at 50, you place a 50 in a square.

The price then moves to 52.

You would enter 51 in the square above the 50 and 52 in the square above the

all in the same vertical column.

You continue plotting in the same vertical column as long as the price

the same direction.

A change of column only occurs when the price reverses by a predetermined

amount. For a standard one -point chart, that reversal is one full point.

So if the stock after reaching 52 declines to 51, you must move one column

the right and begin plotting downward starting with 51.

If it then continues down to 45, you would fill in the figures 50, 49, 48,

46, and 45 in this new column.

If the stock then rallies back to 49, you would move one more column to the

right and begin plotting upward again with 46, 47, 48, and 49.

It is critical to note that if a price level is skipped in the actual trading,

for instance, if the stock jumps from 50 to 53 with no trades in between, You

must still fill in the squares for 51 and 52 on your chart as if trades had

occurred there.

This ensures the integrity of the horizontal count.

To keep track of the passage of time, Wyckoff recommended placing the initial

each new month below the column where it begins and circling the final entry of

the previous month.

While the one -point chart is excellent for detailed analysis, it can be

sensitive to minor insignificant fluctuations.

To gain a clearer perspective of the larger trend and the more significant

causes being built, Wyckoff used a three -point chart.

The purpose of the three -point chart is to condense the history recorded on the

one -point chart by discarding all reversals of less than three full

This filtering process provides a much clearer view of the major campaigns of

accumulation and distribution.

The construction of a three -point chart is derived directly from the one -point

chart.

For example, if a stock on a one -point chart moves from 25 up to 31, then

reacts by only one point to 30 before continuing up to 32, this one -point

reaction is ignored on the three -point chart.

The three -point chart would simply show a single uninterrupted vertical column

of X's from 25 all the way to 32.

Similarly, if the stock had reacted by two points, say from 31 down to 29

moving to 32, this two -point reversal would also be disregarded.

A change of column on the three -point chart only occurs when the stock

experiences a reversal of three full points or more.

For example, if after reaching 32 the stock then declines to 29, this three

-point reversal would necessitate a move to the next column on the right.

and you would begin plotting the downward move from 31.

This method of filtering reveals the larger, more meaningful swings and

the broad horizontal formations that are essential for projecting major price

objectives.

Wyckoff also noted that for very high -priced or extremely volatile stocks, a

five -point chart could be used, following the same principle.

He strongly advocated using the one -point and three -point charts in

combination.

as one provides the fine details for timing and the other provides the broad

perspective for strategic planning.

With a clear understanding of how the charts are built, we can now delve into

the core of the method, the horizontal counting technique.

This is the practical application of the law of cause and effect.

The horizontal formations or congestion areas that appear on the point and

figure chart represent the cause being built.

It is in these areas that the stock is either being accumulated for a future

rise or distributed for a future decline.

The width of this formation, measured by the number of columns it occupies,

indicates the potential extent of the subsequent move.

The technique itself is straightforward.

First you identify a well -defined trading range or consolidation area on

point -and -figure chart.

Then you count the number of columns within that area along a specific price

line.

This count represents the force of the cause.

For an upside projection from an accumulation area the count is typically

along the price line of the lowest point of support within the range.

For a downside projection from a distribution area the count is taken

price line of the highest point of resistance.

Once you have this count you project the price objective.

For a one -point chart, the number of columns in the count is added to the low

of the trading range to find the upside target, or subtracted from the high of

the range to find the downside target.

For a three -point chart, the process is the same, but the column count is first

multiplied by three.

This multiplication factor accounts for the greater significance of each column

on the condensed chart.

Let us walk through the hypothetical stock campaign Wyckoff used in his

to illustrate this method in action.

Imagine a stock that has been declining and begins to form a base in a range

between 30 and 35.

On the one -point chart, after several swings, a clear line of support forms at

the 30 price level.

As the stock continues to trade sideways, this line of 30s widens.

Let us say that the count of columns along the 30 line reaches a total of 12,

including any blank spaces within the formation.

This count of 12 represents the measured cause.

To find the upside objective, we add this count of 12 points to the price

at which the count was made, which is 30.

This gives us an initial price objective of 42.

Now we turn to the three -point chart for confirmation and for a longer -term

perspective.

Because the three -point chart filters out minor reversals, the horizontal

formation may look different.

but it will represent the same underlying cause.

Let us say that on the three -point chart, the line of support at the 30

has a width of 7 columns.

According to the method, we first multiply this count by the chart's unit

so 7 times 3 equals 21.

This result of 21 points is then added to the support line of 30, giving us a

longer -term upside objective of 51.

The Wyckoff analyst now has two correlated projections.

He has a short -term objective of 42 and a longer -term objective of 51.

This tells him that the accumulation taking place in the 30 to 35 range is

significant and is preparing the stock for a substantial advance.

He can now plan his campaign with these targets in mind, entering a position at

a logical point, such as a spring or a jump across the creek.

with the confidence that the potential reward is far greater than his initial

risk. As the stock begins its markup phase, he can track its progress against

these projected targets, using them as a guide for when to expect resistance or

when the move may be nearing its culmination.

This methodical, evidence -based approach to setting price objectives is

separates the Wyckoff method from mere guesswork.

It provides a logical framework for understanding a market move from its

inception in the cause, to its completion in the effect.

Having established the foundational principles and mechanical construction

the Wyckoff point and figure chart, we now proceed to its practical

Theory without proof of practice is of little value.

The true power of this method is revealed not in hypothetical examples,

its application to the crucible of the real market.

Richard Wyckoff did not merely theorize.

He tested and refined his methods over decades of active trading and analysis.

He left behind a rich record of these analyses in his educational courses,

demonstrating step by step how the point and figure counting method could be

used to project the price objectives of real stocks in real market campaigns.

In this section we will conduct a series of deep dive case studies, examining

the very charts that Wyckoff used to teach his students.

We will walk through these historical campaigns, applying the counting

to see how it provided a clear and logical roadmap for the significant

moves of his time.

This is the practical work of a Wyckoff analyst, translating the horizontal

cause into a vertical objective.

Our first case study is an exhaustive analysis of a campaign in Bethlehem

covering the period from late 1930 to mid -1931, as detailed in Wyckoff's

course.

This example is particularly instructive as it showcases the method's utility in

both bull and bear swings and demonstrates how one phase logically

next.

We begin in November 1930 with the stock in the midst of a severe decline.

On the one -point chart, the price falls precipitously from 71 to 59.

After such a steep drop, an oversold condition is created and the stock

to form a horizontal congestion area.

This is the first point at which the analyst must begin to pay close

The stock rallies from its low near 59, but fails to recover more than half of

its decline, being turned back at a price of 66.

It is here that the first significant cause begins to build.

The price moves sideways, forming a distinct line of distribution across the

and 66 levels.

On the one -point chart, this horizontal line stretches to a count of 11

columns.

This count of 11, taken from the 65 price line, gives a downside projection

price of 54.

However, the three -point chart provides a broader and more ominous perspective.

It filters out the minor rallies and shows a more consolidated area of

The count across the 66th level on the three -point chart is eight columns.

Multiplying this by three gives a projected decline of 24 points,

downside objective of 42.

As the price breaks down from this distribution top, it fulfills its

-point projection by slumping to the mid -50s.

After a brief pause, the decline resumes, and the stock eventually

low 50s.

It is at this point, around the 50 level in late December, that the character of

the market begins to change.

A new and far more extensive horizontal formation begins to take shape.

For nearly two months, the stock oscillates in a range primarily between

55.

This is the new area of study.

Is this a pause before a further decline, or is it a major accumulation

The answer lies in a careful analysis of the point and figure chart.

A long and broad base of support is established along the 50 -point line.

Wyckoff's analysis showed that by counting all the columns from the

this formation to its end in early February, the total count on the one

chart was an impressive 25 columns.

This massive cause, built over many weeks, projected a powerful effect.

Adding the 25 -point count to the low of the trading range gives an upside

objective between 72 and 75.

The three -point chart confirmed this conclusion.

The count across the 50 line on the three -point chart was eight columns.

Multiplying this by three gives a 24 -point projected advance, indicating a

target of 74 to 75.

With this clear upside objective, the Wyckoff analyst would have been on alert

for a buying opportunity.

such as a spring or a jump across the creek, to enter a long position.

The stock then began its markup phase, moving steadily higher throughout

February.

As it approached its price objective in early March, reaching a high of 70, the

character of the P and F chart once again began to change.

A new wide horizontal formation appeared, this time as a sign of

A line of supply formed across the 69 -point level.

stretching for eight columns on the one -point chart.

This signaled that the advance was over and a new decline was imminent, with a

projected target of 61.

The stock subsequently broke down, precisely as projected, fulfilling the

forecast.

This Bethlehem Steel campaign is a classic example of the Wyckoff cycle in

action, and it demonstrates the remarkable power of the point -and

to project the price objectives for each successive phase of the cycle.

Our second case study examines the action of US Steel in 1931, another

example from Wyckoff's course.

This case is particularly useful for demonstrating how to analyze a major

distribution top.

In February 1931, following a significant rally, US Steel began to

horizontal formation with a resistance line around the 152 level and a support

line around 143.

For over a month the stock traded within this range.

The Wyckoff analyst, tasked with projecting the next move, would turn to

point and figure chart to measure the cause being built.

The count on the one -point chart across the 149 to 150 resistance level was a

substantial 23 columns.

Subtracting this from the high of the range gave a downside objective of

approximately 126 to 129.

This was a clear warning that the next significant move was likely to be

downward.

However, as with the previous example, the three -point chart provided an even

more powerful and accurate forecast.

The consolidated formation on the three -point chart across the 148 level

yielded a count of 12 columns.

Multiplying this count by three gives a projected decline of 36 points.

Subtracting this from the top of the range indicated a much lower price

objective, around 112 to 116.

This showed that the distribution was significant enough to cause not just a

minor reaction, but a major decline.

Following this period of preparation, the stock broke support in March and

a relentless downward march.

The decline did not stop at the one -point objective, but continued steadily

lower.

As the weeks passed, it became clear that the larger projection from the

-point chart was the more accurate forecast.

The stock did not find any significant support until it had reached the 110

level in May, fulfilling the three -point projection with remarkable

This case study underscores two important points.

First, it demonstrates the superior value of the three -point chart for

the potential of major market swings.

Second, it shows how the point and figure count can provide a clear warning

major decline long before the public, which is often still bullish at the top,

becomes aware of the danger.

Our final and most powerful case study is Wyckoff's analysis of the 1929 market

top, one of the most famous and accurate forecasts of his career.

He demonstrated how the point and figure chart of the New York Times 50 stock

average gave a clear, quantifiable warning of the impending crash.

Throughout the summer of 1929, while the public was consumed by an unprecedented

level of speculative frenzy, the market averages were building a massive

horizontal cause.

The NY Times average moved sideways in a broad range, with a major support level

forming around the 296 to 300 level.

Wyckoff, applying his counting method to this vast formation, found the evidence

to be overwhelmingly bearish.

The count on the three -point figure chart taken across the 299 price line

an enormous 44 columns wide.

When multiplied by the three -point factor, this yielded a staggering

decline of 132 points.

Subtracting this from the 299 level at which the count was taken gave a

price objective of 167.

This was a scientific projection based on the measured cause.

indicating that a decline of catastrophic proportions was the most

outcome. When the market broke its support levels in October, the

panic unfolded with a violence that shocked the world.

But it did not surprise the students of the Wyckoff method.

The market, after topping out at 311, plunged relentlessly downward.

The initial panic culminated in November with the average hitting a low of 165.

Wyckoff's projection of 167, made weeks before the crash began, was proven to be

accurate to within just two points.

This legendary forecast stands as a timeless testament to the power of the

-and -figure method when used correctly.

It proves that major market events are not random acts of fate, but are the

logical effects of causes that can be seen, measured and projected by the

analyst who knows where to look and what to measure.

It is essential, however, to heed Wyckoff's own cautionary advice

method.

He repeatedly warned his students that the point -and -figure count should

be used as an infallible or mechanical system.

The price objectives derived from a horizontal count are not certainties.

are probable targets.

The market may fall short of its objective, or it may overshoot it.

The count provides a logical destination.

but the analyst must constantly judge the market's action on its journey

that destination.

Wyckoff insisted that the point -and -figure chart must always be used in

conjunction with a vertical line chart.

The vertical chart, with its record of price and volume, provides the critical

moment -to -moment details about the character of the market.

It is the vertical chart that confirms the trend, shows the quality of supply

and demand, and reveals the buying and selling climaxes that often mark turning

points.

The point and figure chart tells you how far a stock might go.

The vertical chart tells you how it is traveling on that path and whether it is

likely to get there.

To use the point and figure chart alone, without reference to volume and the

detailed price action on the vertical chart, is to ignore half of the

evidence. The Wyckoff method is a holistic approach.

a synthesis of multiple tools, all designed to interpret the market's own

For those who wish to truly master the lessons discussed here, it is essential

to study them from the source.

Please take note of a unique new edition of Richard Wyckoff's masterpiece, How I

Trade and Invest in Stocks and Bonds, by Max Davidson.

It has been meticulously adapted for the modern trader.

complete with explanations that make Wyckoff's timeless wisdom more

than ever.

For anyone who wants to truly absorb the lessons we are discussing, this adapted

edition is an indispensable part of your library.

The link to this book is located in the description of this video.

In conclusion, the Wyckoff point and figure method for setting price

is a unique and powerful tool that stands apart from nearly all other forms

technical analysis.

It is the direct practical application of the market's most reliable principle,

the law of cause and effect.

By teaching the analyst how to measure the cause, the extent of the

or distribution in a trading range, it provides a logical and evidence -based

means of projecting the extent of the subsequent effect, the uptrend or

downtrend. It is not a simple pattern to be memorized, but a profound technique

for quantifying market potential.

When used with judgment in combination with a careful reading of price action

and volume, it transforms trend trading from a simple exercise of following the

price into a strategic campaign with defined, measurable objectives.

It is a cornerstone of the scientific approach to the market that Richard

Wyckoff championed throughout his life.