What Is Count?

The term count refers to a form of technical analysis that employs point and figure (P&F) charts to evaluate the vertical movement of stock prices. Designed to be used for long-term investing analysis, point and figure charting is considered one of the easiest ways for traders to determine entry and exit points. Traders who employ count analysis plot price increases and decreases that are used to pinpoint target prices.

Key Takeaways

  • Count is a form of technical analysis that uses point and figure charts to evaluate the vertical movement of stock prices.
  • Count analysis uses Xs to represent price increases and Os for price decreases to pinpoint target prices.
  • Count calculations are based on historical sideways price movements, which are used to determine the probability of reaching a price target.
  • There are several count methods, such as the breakout count method, the reversal count method, and the horizontal count method.

Understanding Count

Technical analysis is a type of trading discipline that uses charts and graphs to evaluate past trends for securities, such as price and trading volume, in order to determine future performance. Traders employ technical analysis techniques in order to find the entry and exit points that will optimize profit. Some traders use point and figure charts without accounting for the passage of time. This technique is referred to as a count analysis.

Count analysis plots Xs to represent price increases and Os for price decreases on its chart. Analysts base count calculations on historical sideways price movements and use them to determine the probability that a price target can be reached. Count analysis Xs and Os are used with a traditional scale and a previously determined reversal amount. Traders use this to determine if certain positions are profitable. Investors can review the sequence of price fluctuations to estimate how prices will move in the future. There are several count methods, such as the breakout count method that is used to find a bullish price objective must be used with an active P&F buy signal.

As an investor, you can review the sequence of price fluctuations to estimate how prices are likely to move in the future.

Types of Count Analysis

As noted above, there are different methods for count analysis, such as breakout, reversal, and horizontal counts.

Breakout Count Analysis

The breakout count method is used to find a bullish price objective must be used with an active P&F buy signal. There are four steps to this method.

First, the most active sell signal, known as a Double Bottom Breakdown, must be found on the P&F chart, working from right to left. The second step involves working to the right of this signal to find the next buy signal or the Double Top Breakout. The column producing this signal is key because it becomes the measure column. Then, the height of the measure column must be calculated and multiplied by the box reversal amount. Finally, the total of this calculation must be added to the low of the column to the left of the measure column.

Reversal Count Analysis

The reversal count method may be used to find bullish and bearish price objectives. There are three steps used to find bullish prices. The reversal count must be used with an active P&F buy signal. First, working from left to right, the most recent P&F sell signal must be found. The X column next to the sell signal becomes the measure column. Next, the height of the column must be calculated and multiplied by the box reversal amount. Then, the total must be added to the low of the column to the left of the measure column.

Horizontal Count Analysis

For the horizontal count method, a congestion pattern or reversal must form on a P&F chart. The congestion pattern needs to be a minimum of five columns wide and must have a column that breaks the congestion. The columns in this pattern are to be counted. This is the width. After the breakout column occurs on the P&F chart, analysts can multiply the width by the box size and the reversal amount to estimate price extension. The extension is added to the low of the pattern for a price objective.