Pivot and Trend Change

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.

300px-Oscillating_pendulum

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.

The Market Pendulum

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.

pundulum in pendulum

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.

 

5 Responses to Pivot and Trend Change

  1. mlurski says:

    Obviously you are “anal” about applying your methodology …. you should have that same style/attitude/approach when explaining your methodology 🙂

  2. mlurski says:

    1 – “A pivot is the price extreme reached before a change in trend, so either a high or a low.” Maybe a better way to state “trend” would be – A pivot is the price extreme reached before a price reversal, so either a high or a low ?? because are there not pivots within trends? yes, they may be smaller trends, but then maybe a defintion of a trend and how there trends within trends ??

    2 – “… 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.” – no idea what this means … well maybe after reading it about 6 times, i can see that you are explaining why … to me its in the wrong place in the glossary … maybe it should only be in the rules section – here i am trying to learn terms and you are mixing rules

    3 – “2SMA(OHLC/4 2 period simple moving average” – are there some typos here? i cant figure out the syntax and dont understnd the calculation

    4 – “simple moving average using the average price of open, high low and close” – how is this calculated? Is it a standard study that can be found on charting systems or this a study that you create within ur charting package?

    5 – Is the picture of the swinging vectors (or whatever they are) supposed to be illustrating your explanation of a pendulum or a pivot? Im not sure and therefore it is causing confusion 🙂

    6 – “When looking at charts on multiple wave scales trend channels show you the normal expected extremes, expect depending on the interaction of different waves scales shown in Sine Wave this may not necessarily appear as a simple sine wave and is discussed further under corrections.” – NO IDEA WHAT THIS MEANS AND WHAT DOES THSI HAVE TO DO WITH EXPLAINING A PIVOT?

    7 – “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.” – CLEARLY THIS DOES NOT HELP DEFINE A PIVOT

    8 – 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. – AGAIN, NO IDEA HOW THIS IS HELPING DEFINE A PIVOT

    9 – So for example a long term …. AND EVERYTHING AFTER IT HAS NOTHIGN TO DO WITH EXPLAINING A PIVOT

    10 -THERE IS A LOT OF COMMENTARY ON THIS PAGE AND VERY LITTLE EXPLANATION OF PIVOT – PIVOTS SEEM IMPORTANT BUT THEY ARE NOT ADEQUATLEY EXPLAINED HERE

    • Marc says:

      1 – To me the trend is the direction of prices in the wave scale you are trading whereas a pivot actually is the bar / candle with the high or low. Need to see how better to explain – maybe adding in a chart would simplify it!
      2 – need to sort a list of rules as a separate page.
      3 – 2SMA(OHLC)/4 2 period simple moving average (closing bracket missing) Will edit.
      4 – I dont believe that closing prices are as important as the industry practices so in the rare occasions I use them most often I average the 4 (eSignal and Market Analyst are what I use – given up on others!) but dont trade any form of averages – they just approx visuals to me.
      5 – Price extremes – highs and lows – prices move from extreme to extreme on each fractal wave scale.
      6 – I need to make separate page for channels as I have developed different channels since I wrote this and now it is a pretty crucial element of the analysis. The channels I now use are price extremes and a breach is a confirmation. – can come out of here!
      7 – yes needs coming out and need to add a page on behavioural traits.
      8 – as 7
      9 – hmmm yes my rants and raves ….. out!
      10 OK need to remove….
      Thanks – this is what I need here – positive honest criticism!

    • ron jaenisch says:

      I gotta agree……….lots of BS but no substance. A pivot is a reversal point in price……………thats all there is to it.

      Now there are different ways to classify them in order to do computer testing.
      The video shows several test and what happens when you change the formula a little bit.

      https://www.youtube.com/watch?v=L2ZhnKItX3M&feature=youtu.be

      • Marc says:

        Ron I was very surprised to see you signing up to my blog, but not as surprised that you actually posted a comment!!!! I am not surprised that your comment was under pivots as that has always been an issue between us before you kicked me off the course! You clearly still have no idea as to what pivots to use as is highlighted in your video link where you show up to three attempts to even demonstrate something that you do not actually tell your students what it is you are trying to show!
        But really Ron advertising on other peoples blogs is a sign of desperation!!!! Really not on!

        After paying $3500.00 for the Advanced Andrews course (marketed under his various websites as Babston, Action Reaction and god knows what else!!! which may have something to do with the fact that customers realise they do not get value for money and look for something that actually works might get coned into another version….. ), I asked too many questions and never got an explanation as to what pivots should be used. I was always told this is covered in the Enhanced course which cost at the time $25000.00! I challenged Ron and the entire Enhanced Andrews Course to make projections, and if my projections were more accurate than theirs I would get the course for free, and if they were more accurate than me I would pay for the course. RESULT??? Ron kicked me off the course and the alleged lifetime access clearly is not worth his pride to stick to as claimed in the advertising and conditions once customers pay!!!! Hmm….. That is human behaviour – hit the pride a bit too hard. MY WHOLE METHODS ARE BASED ON HUMAN BEHAVIOUR – so I was not surprised! When I pay for something I expect to get what I paid!

        From the Andrews course which is available for free (http://www.trading-naked.com/alan_andrews_course_1.htm ), and the video, it is still clear Andrews never systematically used pivots as MAP Wave Analysis does.
        Ron just a reminder you that you cannot incorporate my methods into your Andrews course, or any of the other names you market yourself on! Andrews methods as taught by Andrews originally and by you picks random pivots as is confirmed in your numerous videos.

        Good luck with your computerised trading system which highlight your incompetence in using Andrews methods for projecting price movements! Really you should make a moral decision….. Only proper cycle analysis gives accurate projections. Everything else is looking in the rear view mirror!

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