TREND :PIVOTS
Okay,now that we know that a higher high is when the previous bar's high is crossed,and a higher low is when the low is higher than the previous bar's low,and that a series of higher highs and lows make an uptrend........we retrace a bit and change things around a bit.
Just higher highs and lows alone do not make an uptrend.Yes we have an up-move but an up-move doesn't mean we are in an uptrend.Higher highs and lows form a rally.Lower highs and lows form a decline.
We can have declines in an uptrend.We can have rallies in a downtrend.So now that we know that a series of higher highs is called a RALLY,how then do we define an Uptrend?An UPTREND on a particular time frame is a series of higher pivot highs and lows on that time frame.What then is a downtrend?Nothing but a series of lower pivot highs.
So what then is a Pivot?Okay,we are back to the "Hand" example.Whisk out your right hand again,once again with your right palm facing you.We have our little finger.The ring finger makes a higher high and low as compared to the little finger.The middle finger is higher high and low as compared to the ring finger.We therefore have a RALLY.The index finger makes lower highs and lows as compared to the middle finger.The thumb makes lower highs and lows as compared to the index finger.We therefore have a DECLINE.The middle finger with two lower highs on both sides(ring and index)now forms a PIVOT.
Imagine we have Area A.Rally starts from Area A which is followed by a decline to an area that is higher than Area A.We call this new area where the stock has declined to as Area B.So on so forth..Therefore Area B is higher than Area A,Area C is higher than Area B,so on so forth.We have therefore what is called an uptrend.These areas are pivotal areas where the stock stops its decline and rallies upwards.We refer to these turning points as pivots.
Therefore,in the above example,as each pivot is after a decline,and the pivot is the low after which the stock takes off again,we call them PIVOT LOWS.
Right the opposite in a downtrend.The stock declines from an area and then rallies to an area lower than the first,so on so forth.In this case every pivot is after a rally,and the pivot is that area after which the stock declines further to new lows.
As this pivot tells us of that high after which things go back to its declining ways,we call that a PIVOT HIGH.
So,in an uptrend,we have HIGHER PIVOT LOWS.How did we come to that?Each pivot low is higher than the previous pivot low.Therefore we call it higher pivot lows.
In a downtrend,we have LOWER PIVOT HIGHS.How did we come to that?Each pivot high is lower than the previous pivot high.Therefore we call it lower pivot highs.
In a sideways trend,we have nearly equal pivot highs and lows.
Basically didn't want to introduce the word "Pivots" very early on.......but there really is no other way to tell what a trend is all about.Will take some chewing,and digesting.The only way is to look at the charts and start to make out all the pivot highs and lows.
