Trending Changing Pivots and Power of Pivots

Corey Halliday
A free video tutorial from Corey Halliday
professional trader and educational instructor
4.4 instructor rating • 9 courses • 22,931 students

Lecture description

In this lecture we will talk about various trend changing pivots, power of pivot low and power of pivot high. We will make use of graphs so you'll get a clear view of the concept

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English [Auto] So when we put these pivots in context all pivots start off as minors and then work their way up from there. When the trend changes the pivot that marks the extreme is been upgraded. So all pivot started as a minor turning point. Right you turn for one day and then two days. But you can look back over the chart and see where the more pivotal levels were. Right. And so it's kind of like if you think about a football game in a football game there's a lot of swings and momentum. Right team might kick off the other team catches the kickoff and they fumble at the 5 yard line. So if you were to go back and look at that game there might be five or ten pivotal plays there may have been 100 plays in the game but there were five or ten that were very significant. Right. Big momentum changers. And that's kind of what we're looking at here. You have your normal just choppiness within the trend and then you have your big pivotal turning points. Then there are catastrophic type of you know changes. These are multi-year major pivots. These are seen less often but this would be kind of the changes in the trend that pull that down here. Hold on tight for me. We're not getting that interruption. When you look at the major trend changes right. The major pivot reversals. That's like thinking about well within this one game you had some significant events that changed your whole season. So if you end up winning the Super Bowl there was some turning point that caused you to get on the right path and it might have been the fact that you you know made a trade that allowed you to pick Peyton Manning. Or or you know chose Aaron Rodgers or whatever it was you picked somebody that turned your franchise around and that's kind of how these major pivots are so they're not even within a game they're within the dominant trend. I mean something that is changes your fortune for years or decades to come. So trend changes create these intermediate pivot and how does it look on the chart. Well when it first happens it looks like any other pivot right. Everything starts as minor but it's what occurs afterwards that kind of upgrades that. So here you can see the price action falling to the downside we're just falling falling falling and at the time this doesn't look all that significant. Right. We hit a new low. Now we start to turn up. But what evolves thereafter. The fact that we start to now make new highs and new lows means we need to go back and upgrade this bottoming point because if you say where was the bottom in the stock the bottom the lowest point was way down here. At that time that could have just been a minor pivot low. But now it gets the upgrade. Now it's considered a major turning point in the game. Right. It's an intermediate pivot or a big turning point in this case of course for the stuff. Now when we think about it we could put categories around it we could say well you can define how significant a pivot is by how large it is in size and strength. So if it changes you know if we use the football analogy again if it changes the score of the game if I'm about to go in for a touchdown and I fumble not only do I lose out on the six or seven points that I would have scored. Right. I get the six points plus the extra point. I don't not only miss out on that 7 but if they pick up the fumble and return it back it's actually a 14 point swing. It's a big turn. And here you're looking at the same thing with the power of the pivots and same type of concept. If we hit a key and there's a ton of price action to the lower left and the lower right it's a big score it's a big turning point. Whereas if it's only minor meaning you turn down for five days and then you break to new highs. Well that peak wasn't all that high. Ok that was an all that powerful. It didn't really change much. So you're only as strong as your weaker side and a pivot. So if you think about it this chart this pivot is a power of five. Why. Because you count all of the candles that are below this pivot on both sides. Well if we start counting to the lower left and I'll just mark them here. We've got one two three four five six seven eight. Got a lot of candles and they probably keep going. You got all these candles so lower left. I don't even need to count all of them. I only have to count the weaker of the two sides. And there are only one two three or five candles to lower right. The fifth candle made a new high. So is this a major topping point. Is this a big peak on the chart. Is this a significant turn. Absolutely not. To turn down for five days and then to turn back up on the sixth and make a new high means that this is nothing more than a very minor stopping point. Yeah it halted the price action on the upside for five days and then we went zipping right back to New highs. Clearly this is not a major or even an intermediate pivot. It's just a minor pivot within the trend. There are only five candles on its weaker side once that stock is made a higher high. Any pivot progression any significance of the prior peak has now stopped its progression is halted. OK. So when we think about a power of a pivot how many candles are on each side. So when you take a pivot low we'll how many candles are on each side you're just counting them. Well we have one on this side and one on this side. So it's a power of one. If you have two candles on each side then you're a power of two. Now what if However we have a lot of candles up here we have one right there you have two right here one right here two right here would have these. Keep going on and on and on and maybe there's thousands you know up here or whatever but you fast forward and there's three candles above here. And then the fourth one breaks down. Guess what. It's only a three pivot. There are only three candlesticks above it on this side meaning it was only a bottoming point for three days. Yeah. It stopped the decline we bounce for three days. And on the fourth day we were at new lows. Clearly that is not the bottom. Clearly it is not all that significant. Right. So this is something that you know takes time to develop and the pivot grows in strength and power thereafter. Let's do a couple more examples. How strong is this pivot low. What is its power. Well remember you're only as strong as your weaker side. So I could count all of the candles above this pivot low on the right hand side. Do I really need to do it. No I only need to figure out how many are on its weaker side and I can see that there are 1 2 the RE for five and six that are above that candle seven days ago we were in a lower point eight days ago we were even lower than that. This only has six candles above it on its weaker side. It's only a P-6 pivot. Or another way of saying that it's only a minor stopping point. You know we held support there for a little bit but it's just when you look at a trend you know if the trend goes like this how significant are all of these lows. Well they're just not that significant. Right. They're just minor pullbacks. And how significant are all of these highs. Well not all that significant. It caused a minor decline. That's they're minor pivots and they should be identified that way. But if you have that same looking trend and then there's a major turn now I say Well how significant is this pivot up here. Now all of a sudden it's significant. Right. It has a major turn or same thing down here. You know how significant are these low down here. Very very significant. Powerful term earning points for that stock or you know they use the football analogy that franchise was a big change in the ability of that franchise the to win games or lose games. And this chart the pivot is only a P-6 because on its weaker side it only had six candles above it. Now how this question came in. How can one tell if you're clearing a pivot hide you need to wait for two or more candles to move higher then pull back to the prior high and then X can move higher to be a pivot high. Well basically Certainly if you close beyond a level now you could argue that you know it's not really a higher high if the candles just kind of line up. So if you go up and you hit a peak and then you go down then the next one just kind of barely peaks above but turns down that's not really a higher high. Right. But you should essentially be able to eyeball it. If it turns back at the same general location then we call it an equal high. Even if one side was a little bit higher than the other they're essentially equal. But if you break and close through this you know and there's no perfect definition. But if you break and close through it and then it you know zooms up for another day and then it turns back down and so forth. That is a higher P You can draw a flat across you know they're in similar areas. But we did achieve a new high we broke and closed at new high levels. So that's kind of the concept right. So.