Optimal Definition of Pivot and Trend Change

[taotree 10]

I'm interested in brainstorming, sharing ideas about what people have found to be the best programmatic definition of a "pivot" (not like s/r or floor trader pivot, I mean price turned around). Also, by extension, a trend change is just a higher time frame pivot, so discussing definitions for that would be interesting as well.

 

Here are some things I have tried:

 

1) Min move: specify certain value that it has to move. Once it has moved that far, the previous local extreme is determined to have been a pivot.

 

2) Min move with min retrace %

 

3) MA crossover: Pivot is whatever the extreme was between MA crossovers.

 

4) MACD and bollinger bands, as MACD goes back and forth between/across the bollinger bands, choose extreme based on those "states".

 

5) There's the n number of bars up/down approach before/after the pivot.

 

Trend change:

 

Typically what I hear is: higher low or lower high or some combination thereof, but that then requires a high confidence in one's choice of pivots.

 

Those are some ideas. One thing that may be lacking in those, though, is a more interpretive approach. How does one determine that the market has given some significance to that candidate pivot? Arbitrarily choosing a move size results in arbitrary pivots. How does one discern that the market has placed significance at a certain turn around?

[Tams 20]

some food for thought...

 

 

 

 

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Edited August 28, 2009 by Tams

[minoo 11]

Pivots occur many times in intraday trading, those pivots which occur at or vicinity of Areas (ie Daily-Pivots, Fibs, Value Areas, Previous Hi Lo, etc) are actively monitor by many market participants of different time frames, ability & type of trader.

 

Pivots which occur with Market Internals signal/alerts either leading / preceding them are most indicative ones. The characteristics of price bars, candle preceding a pivot formation tells you as much. I give more weight to pivots at confluence of areas or rather anticipate them but still would like to see follow through by non-price parameters. If an intraday trader learns whatever his price-pattern/action, candle patterns, not only at areas but with Market Internals as part of his setup than it could provide a distinct edge.

 

Most intraday traders find it very difficult when they look for change in direction or trend, to trade from rather than minor direction or trend continuation signals

In my book of intraday trading break of minor highs is contiunation of up direction and break of minor lows is continuation to the downside. Playing the game (Pivots) of continuation in the underlying trend been more profitable to me than any other.

 

There are three C's you got to deal/trade with mostly in trading; Change, Continuation and Consolidation; Which rather suits your personality and which actually you can act upon timely to enter, monitor (incl Stay out position) and exit profitably.

 

This is where you got to be able to act in your own best self interest if not in the path of least resistance .. . . .

 

The fourth C if I may put in here is the Context (Major Pivots which has form market structure) which provides you the grid of where the market prices been, heading and now.

Enuf said, back to the Pivots

 

For the Pivots part, Please refer to the attached links; pasted below are some paras from them

 

REVERSAL BARS

Reversal bars are an objective technique used to time the entry of a trade. When pattern, price and time all come together at a suspected major pivot, and you hesitate while wondering if the prior trend will continue against your new position, a reversal bar can be the objective trigger to prompt you to take action. The examples demonstrated below have many variations. The example given is not the only possible configuration for that reversal bar type. The important concept is that with every configuration, prices make a new high (or low) but close opposite the direction of the open and the trend. The reversal bar is telling you that the trend for that time frame has run out of gas and that no new buyers or sellers are coming into the market. For bullish reversals just substitute low for high.

 

Not every reversal bar is significant. This is especially true for intraday charts. Reversal bars take on importance when they occur at a coincidence of pattern, price and time.

 

CONTINUATION BARS

Not every major pivot point is marked by a reversal bar. Continuation set-ups can still get you in a trade relatively close to the pivot point. Continuation bars are easily identified on a bar or candlestick chart. They always start with either an inside bar or an outside bar.

 

 

Trading Stocks Education - Triggers: Reversal Bars

 

Trading Stocks Education - Triggers: Continuation Bars

 

Enjoy Minoo