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ROB: If you're using a P&F chart, you should use a box size & count that makes
sense for the product you're trading. Personally, I like to use at least a
couple of percent change or 3 to 5 ticks as a target guideline. So, for
example in bonds, I use 2 ticks (.066) and 3 boxes for a "slow" P&F and 1 tick
(.033) and 3 boxes for a "fast" P&F. In YOUR example, based on a security
priced at $1.25, I'm assuming that trades in 1/8's(12.5 cents) or 1/16's(6.25
cents) as a minimum "tick". If so, I'd use 6.25 cents and 3 boxes as my P&F
parameters. Of course, that's a wide swing for a security priced at $1.25 to
begin with. But the point is, you have to select your box size and count
based on the price of the underlying security, while taking the "price" of a
minimum tick trade in that security into consideration. A better example
would be gold. Priced around $280 and trading in minimum tick of 10 cents,
I'd want to see at least, say, an $8 move before I got a reversal (anything
less is noise) on a "slow" P&F.... if you divide $8 by 3 you get roughly $2.70
(which is divisible by 10 cents). So, for a slower P&F you might use a box
size of $2.70 w/ 3 count in gold. For a "faster" P&F you might use 90 cents
and 3, to keep reversals outside of $3.00 (anything less being shorter-term
noise), etc.
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