One of the main goals of technical analysis in the financial market is to identify price return points. In fact, if one reaches this level of analytical skill, it will be like finding the Holy Grail in trading; But according to research, trying to determine the exact points of the floor and ceiling  (areas of price return)  or in other words, the timing of the market, has so far been useless. However, some graph analysis tools have reliable performance in this area. Pivot in technical analysis is one of the most widely used tools to examine the past and present price situation. Simply put, price turning points in a pivot chart are called; Based on the nature of the two types of price and computational, and based on the recursive power of the chart, the two categories of major and minor are included.

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Types of pivots

Piots or return points are usually formed when; That the force of supply or demand prevails over each other! In fact when you look at a price chart; You will see countless pivots, each of which falls into one of the above categories.

1- Price pivot

The basic concept of price points lies in the nature of these points. In the classical definition of price points, it is stated that if the market moves to a certain extent in one direction and after the formation of the ceiling or floor, moves in a relatively strong direction in the opposite direction; A pivot is formed in the chart. This definition has now evolved and is commonly used in price action methods; If the price  moves at least as much as three candlesticks  (Japanese candles) and after the formation of the return candlestick, it moves again with the same conditions but in the opposite direction; We will have a reliable pivot or return point. How to identify these piots is visually and based on the rules of different analytical methods and basically does not require special analytical tools. In general, you can use them based on two trading methods based on previous support and resistance levels or the time of pivot formation.

2- Computational pivot

These types of pies are calculated based on price data  (OHLC)  and mathematical formulas and do not include details of market price movements! In fact, the output of these calculations is in the form of several numbers; They are used as future support and resistance levels of the chart. These points are valid for a certain period of time based on the time period of the chart and price data used, and with the formation of new candlesticks, these levels are updated. For example, the pivot areas of the one-hour chart do not apply to medium-term traders. There are several types of computing pivots, the most important of which are pivot points and Camarilla lines. In the following, we will give a brief description of each of them.

• Pivot Point
  • Pivot Point (PP) = High+Low+Close/3
  • R1 = (2*PP)-Low
  • R2= PP+(High-Low)
  • S1 = (2*PP)-High
  • S2 = PP-(High-Low)

According to the rules, if the price is  higher  than the ” PP ” point ; It means an  uptrend  and we should look for a buy position based on price reactions to resistance levels  ,   otherwise ( price less than  PP ),  we will  sell . Note that the ” R ” points stand for  Resistance  or the same resistance levels   and the ” S ” points for  Support  or support areas of the   chart.

• Camarilla Lines
  • H4 = ((High-Low)*(1.1/2))+Close
  • H3 = ((High-Low)*(1.1/4))+Close
  • H2 = ((High-Low)*(1.1/6))+Close
  • H1 = ((High-Low)*(1.1/12))+Close
  • L1 = Close-((High-Low)*(1.1/12))
  • L2 = Close-((High-Low)*(1.1/6))
  • L3 = Close-((High-Low)*(1.1/4))
  • L4 = Close-((High-Low)*(1.1/2))

We do not have a key area such as “PP” in Camarilla line calculations; However, due to the multiplicity of resistance and support areas calculated in this method, the strength of the trend can be greatly recognized and more accurate trades can be made. In fact, when the price reaches levels 3 or 4 (of type R or S); At first glance, it indicates the strength of the trend and high price mobility. It is important to note that pivot point calculators are the default indicators on most analytics platforms, and even if you do not have them, you can download and install them for free from a variety of sources. In many trading strategies today, piots are used as the main tool alongside items such as trend lines, moving averages, and so on.

3- Pivot major

Even if you are not familiar with technical analysis; Looking at the price chart, the floors and ceilings that have caused strong price movements in the opposite direction are quite noticeable. This return point is called a major pivot. These points are highly regarded, and analysts should use these quotes to chart trend lines and price patterns.

4- Pew minor

There are also pivot points on the opposite side; Which eventually lead to small corrective movements or a neutral trend. Pivot minors  are abundantly visible in low time charts  (small timeframes) ; Because false and cross-sectional fluctuations occur more in midday charts. Because minor return points do not have much power to change trends and create significant price movements; Price patterns and trend lines based on them are not very valid. As a result, traders need to refer to appropriate time periods to reduce the percentage of analysis error.

How to distinguish pivot major from minor

Now that the basic definitions of pivot major and minor have been mentioned; The main question is, how do we distinguish these points from each other? Given that pivot levels are completely price-based, it will be possible to distinguish them visually and by mentally comparing levels based on the strength of subsequent movements; But this requires sufficient experience in the field of technical analysis! For this reason, a hybrid method has been developed that includes two return Fibonacci instruments and a Makdi indicator; Even intermediate and novice traders can recognize these levels. In fact, if the floor or ceiling surfaces of the chart have these two characteristics; We will most likely face a major pivot. The general rule includes the following:

• Suction phase change during pivot formation
• Price correction at least 38% of the previous wave

The final word

In general,  shares are  one of the best tools for analysis and trading in the financial market; However, due to   numerous and severe price fluctuations , they  also have  errors ; Which should be covered by determining precise trading strategies and new analytical methods.

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