Thomas J. Dorsey

This is a review of the 1st edition of Point & Figure Charting: The Essential Application for Forecasting and Tracking Market Prices (John Wiley & Sons, 1995) by Thomas J. Dorsey.

For the first time in my life (I'm 73 years old), technical analysis of the stock market makes sense to me. Enlightenment came when I discovered trend following along with Point & Figure (P&F) charting.

I began learning about the stock market in 1953 when I read How to Buy Stocks by Louis Engel. After that, I added one or two volumes a year to my collection of books on investing. I faithfully watched Wall $treet Week with Louis Rukeyser throughout the 70s, 80s, and 90s. I was a regular viewer of the CNBC business channel throughout the 90s and into the 21st century. The Wall Street Journal, Barron's Magazine, and Money magazine were my familiar daily, weekly, and monthly companions.

I became a buy-and-hold investor in the early 70s, retiring in 2006 with what seemed to be a solid IRA retirement portfolio. Fundamental analysis was the name of the game. Value investing was my thing. The outlook for my Golden Years looked good to me.

Then my financial world came tumbling down with the awful bear market of 2007-2009. Early in 2009, after half of my net worth was gone, I pulled the plug on buy-and-hold. Enter technical analysis, P&F charting, and trend following. In a few short weeks, I turned my investment philosophy around 180 degrees. I made the transition (metamorphosis?) from long-term investor to short- and intermediate-term trader. Growth of capital plus protection of assets became my new strategy.

I acquired a used copy of the first edition (1995) of Point & Figure Charting by Thomas J. Dorsey. This is a practical how-to book on trading. I quickly learned P&F charting fundamentals with emphasis on rising columns of Xs (demand is in control) alternating with falling columns of Os (supply is in control), bullish & bearish trend lines, support & resistance levels, buy & sell chart patterns, bullish & bearish price objectives, risk & reward calculations, relative strength analysis, sector rotation, setting stops, money management, and market timing. Best of all, Dorsey introduced me to market and sector analysis with the power and simplicity of P&F Bullish Percent Indexes. For the first time in my life I have learned how to analyze markets, sectors, and stocks without dependence on the talking heads.

The advantages of P&F Charts are many. They eliminate minor movements by filtering out the meaningless ripples that often make bar charts appear noisy and confusing. They make bullish and bearish trend line recognition a no-brainer, being so obvious that you can't argue with it. P&F charts plainly highlight major support and resistance levels. Buy and sell signals are clear and unambiguous. Bullish and bearish price targets are objectively obtained. Outperformers and underperformers are easily distinguished by means of their relative strength P&F charts. Do you want to outperform the S&P 500 Index? Go for it with your P&F relative strength chart as your guide!

One of the nicest features of Dorsey's book is his presentation of statistical probabilities associated with the various P&F chart patterns. These probabilities came from research done by Professor Robert Earl Davis at Purdue University in the 1960s.

I especially appreciated Dorsey's football game analogy for shedding light on the Bullish Percent Indexes. When the market has the ball (falling column of Os), you make defensive plays. When you have the ball (rising column of Xs), you make offensive plays. Yes, football fans, P&F trading is really that simple.

You will probably want the newest printing of Dorsey's book, now in its 3rd edition (2007). My copy of the 1st edition (1995) is okay for learning P&F fundamentals, but it does not take into account the emergence of such Internet resources as StockCharts dot com and the rise of Exchange Traded Funds (ETFs). The new edition also comes with a CD-ROM containing tests and exercises for mastering P&F charting.

What's really great about P&F charting is the short learning curve. I progressed from mystery to awareness to understanding to mastery within a few days using Dorsey as my guide, proving that old dogs like me can learn new tricks.

Try it. You'll like it.… (mer)