Point and Figure plots reduce complex price oscillations to a simple format which only displays significant price moves. This underlying algorithm is relatively simple, but the technique provides an extremely insightful view of the price movement.

Point and figure plots are constructed as follows. Price movements are plotted in columns of x's and o's. Each x represents a positive price movement based on a user-selected price 'box'. Each o represents a negative price movement based upon the box price. If the plot is in a column of x's and the daily high price exceeds the previous x by at least the box number, then 1 or more x's are added to the column (1 x for each box over the previous x). If the daily high price is above the current x, but less than the box price, the plot doesn't change. If you are in a column of x's and the daily low is more than the 'reversal' amount (3 boxes, by default), then you move to a column of o's. The o column functions similarly, but with respect to price decreases (e.g. if today's low is less than the previous o minus one box, new o's are plotted, etc.).