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The Price Histogram chart (shown below) is a graph that plots time on one axis and price on the other to give a visual impression of market activity. This representation takes the form of a statistical bell curve, just like your high school teacher used. Most students scored in the middle of the bell curve with C's, while fewer received A's and F's. Similarly, the majority of a day's transactional volume takes place in a common range of prices with less trading on the day's extremes.

A few definitions:

The areas of the Price Histogram's bell curve showing the greatest depth (the point of the pennant) indicate prices where trading spent the most TIME, thus establishing VALUE for the day (price x time = value). This 'longest line' is called the Point of Control. 

The Value Area (VR) - shown in blue in the chart below - is simply the price range where 70% of the days business was conducted.

  • Note that many of these daily Structures resemble pennants.
  • Note that the widest point of the pennant  - the tip - is the price range at which the stock or index spent the "most amount of time" during that day.  This is the Point of Control (POC) and is indicated each day with a solid white line.
  • Note how on each day, at some point during the day, the price tends to reach the Point of Control of the previous day.
  • What these charts are telling us is that at some point during the trading day, prices will almost always return to the Point of Control of the previous day.  
  • Notice how in these examples, although the price usually reaches the previous day's Point of Control, it rarely exceeds that. This is particularly the case in a trending market.
  • On the other  hand, while the structure is forming during the day, if you notice that prices move more than 16 points above (or below)  the Point of Control of the previous day - you will usually be looking at a consolidation day.  What this says is that in a daily trending stock or index, chances are that once prices have retraced back to the Point of Control of the previous day, chances are they will continue back in the direction of the overall trend.