Working Money: What Are Pivots? by Dennis D. Peterson
More than just an alternative to indicators,
pivots can be used to better understand market
The appearance of pivots on a chart suggests the
market has made a decision about price action.
Pivots are points at which the price changes
direction. In many ways, they are more useful
than indicators are. You will also find that pivots
are the basis of many technical articles, and
frequently part of trading strategies.
Simply put, pivots are turning points (Figure 1). If the
open-high-low-close (OHLC) bars before and after a bar have
lows above the low of the bar, then the bar is a pivot low. If the OHLC bars before and after a bar have lows below the low of the bar, then the bar is a pivot high. I prefer to see the highs or lows preceding the bar clearly indicate a trend or swing.
Generally, I wait till at least three bars appear after the
candidate pivot point before I determine a bar is a pivot; I
donít want to get caught with a third-day reversal (what that
is, Iíll explain shortly).