A pivot is the price extreme reached before a change in trend, so either a high or a low.
It is common for people to use close, rather than price extremes, because they claim there is some association with behaviour that only is applicable at the end of the day for some reason?? One MAP Wave Rule is the extremes are used. In order to filter out "noise" (which is why some people use close) is that if there is a rule break then if it gives a valid count on the next fractal scale then it is deemed to be within the rules.
Another method of filtering price extremes is to follow a short moving average, and on my charts I use a 1SMA(OHLC/4 2 period simple moving average using the average price of open, high low and close - this uses all market paticipants and not only EOD - end of day)
If you think of price extremes as the amplitude of the wave scale in terms of a pendulum then the pivots define swing of the pendulum, on each wave scale.
When looking at charts on multiple wave fractals, trend channels show you the normal expected extremes, but depending on the interaction of different waves scales as explained in Sine Waves, this may not necessarily appear as a simple sine wave and is discussed further later.
Clearly if one uses fundamental analysis such as return on equity, profitability book value or other such traditional rational investment tools used when people wish to buy and run and generate revenue from a business it quickly becomes clear that the share prices bear absolutely no relation to reality and the reason is that stock markets are gambling houses of the masses that work on the predictable behaviour of playing peoples emotions! If it were a reflection of reality then one would expect share prices to behave more like a normal distribution bell curve where as shares get overpriced more and more participants would exit until the pendulum swings the other way with the maximum velocity of the pendulum being at the bottom being represented by the largest number of participants seeing that there is an over or under evaluation.
We can see non of this orderly behaviour in share prices and so something else must be happening.
The reason is mass crowd behaviour - no one likes to stick out of the crowd! So the effect is more of one where if a bird fly up off the ground the rest will take flight without having any idea why the first one took off. It may be that it just wanted to move to fresher feeding grounds, or there may have been a danger. The market work exactly like this - a tipping point is reached so the bell curve is more like a see saw - where CONFIDENCE reaches a critical mass then the crowd just follows!
In the description of fractal waves you can see this on multiple time frames. This is because as Newton put it - for each action there is an equal and opposite reaction. These actions are policy decision by businesses and governments as well as technological advances. These will impact a market on different time scales.
So for example a long term reaction has been caused by the abandonment of the gold standard. When we actually look at what happened - the governments all of a sudden found a way of removing public control over their spending, and so we are approaching the ending process which will be the collapse of sovereign debt. It will need to be settled and if history is a guide it is not going to be pretty! Hopefully that will lead to new innovation and change the power structure of banking where there is no longer too big to fail as the public wake up to how they have been robbed yet again!
A shorter term action reaction is the fall from grace of companies - new innovation takes time to generate profits and as technology advances they no longer are profitable, but take time to change direction, much like a super tanker - once in motion takes a long time to change course. Many examples of this can be found throughout history and the recent demise of Apple is just a current example. The tell tale signs are have been there just as with microsoft - protectionism start to cost more than innovation!
Even shorter term would be something like the FED speeches or economic reports, where often the market moves in the opposite direction that any reasonable person would expect!
This is simply because no one actually understands how the economy works! Think of it as how would you react in the longer term because your natural behaviour is the long term direction of where things are going and with a bit of open minded historical research you will be pretty accurate!
Historically sovereign debt crises follow the same pattern;
- those in power do what ever they can to stay in power including using force against their own people
- those that are facing a hard time always blame someone else -the immigrants resulting in protectionism
- to harness those emotions those in power turn to nationalism and so you tend to get wars as those in power do what they need to stay in power
- People have enough and eventually revolt as they loose hope for the future.