Let’s say, for an example, the stock you were tracking was trading at $25, and you were using a $1-unit measurement and a reversal box is three units. Now, if the stock had been trading upward to $25, the stock would have to close at $22 before the chart would reverse to a column of O’s. Because each unit of price movement must be plotted, each unit of price movement down from the $25 level must, in this new column of O’s, be represented by one O.

The next reversal would have the stock trading up at least $3, or three points, before a new column of X’s came back into view on our P&F chart. Assume then that the issue continues to fall to $20 before reversing itself; the X’s would reappear once the price hits $23. Remember, you choose the unit size. It could be $0.50, $1, or even $2 if the stock price is high enough. Graphically, the first two columns of our example would look like this…

$25.00 X
$24.00 XO
$23.00 XO
$22.00 XO
$21.00 X

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