What is a Pivot?

Published by Sharekhan Education | May 30, 2022

What is a Pivot?

By Anand Sharma | Sharekhan Education

Observation is the core of chart reading. The more time we spend on the charts, the more we observe and the more we learn. We get a lot of questions during the observation process, and we try to find answers to those questions. Many times during live mentor sessions, we mention the word pivot and I am asked, “What is a pivot?”

However, before I address this question, let me quickly review how we use candlestick charts to determine the source of a demand-supply mismatch. Wherever there is a demand and supply mismatch, we get four formations, as we learned in core strategy class. Each formation is made up of leg-in, base, and leg-out. Price movement is represented by leg candles, and price pause is represented by base candles. Following a price pause, i.e. a base candle, we can expect a price reversal or continuation.

Pivots are price turning points when three candles suggest a specific price pattern or turning points where no base candles are present. A pivot high is a candle that has a high but the candles before and following it have lower highs and lower lows than the middle candle. A pivot low is surrounded by candles that make higher highs.

As pullback traders, we use demand and supply zones to determine entry, stop loss, and target levels rather than pivot points. Now the secret is to try to break that chart on a smaller time frame if we have a pivot on the higher time frame chart; there is a fair chance we will find some good formations around the pivot.

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