Two candles later, another pivot high is formed, and once again we are now

looking
for our pivot low to form and define our levels of any congestion phase. In
this
example the pair do indeed move into congestion, with low volume, and on
each
rally a pivot high is posted which gives us a nicely defined ceiling. However,
there
are no pivots defining the floor. Does this matter?
And this is the reason I wanted to highlight this example to make the point,
that in
fact it doesn't.
A pivot is a unique combination of three candles which then create the pivot,
and
this helps to define the region for us visually. Pivots also help to give us our
'roadmap' signals of where we are in the price journey. But, sometimes one or
other
does not arrive, and we have to rely on our eyes to define these levels. After
all, a
pivot is simply an indicator to make it easier for us to see these signals. In
this case
the pivot high forms, but there is no corresponding pivot low, so we are
looking for a
'floor' to form.
After four candles, the market moves higher again and posts a second pivot
high, so
we have our ceiling well defined, and this is now resistance. The next phase
lower
made up of three candles then stops at the same price level, before reversing
higher
again. We know this pair is not going to fall far anyway, as we have a falling
market
and falling volume. Our floor of support is now well defined by the price
action, and
it is clear from the associated volume, that we are in a congestion phase at
this level.
And, my point is this.
When using any analytical method in technical analysis, we always have to
apply a
degree of leeway and common sense. Whenever a market moves into a region
of
price congestion, it will not always develop the perfect combinations of pivot
highs
and pivot lows, and we then have to apply common sense as here, bolstered,
of
course, by our volume. At the start of this congestion phase, we have a very
good
idea that we are entering a congestion phase, simply from an assessment of
the
volume. The volume is all well below average (the white dotted line)
therefore we
already know that we are in a congestion phase, and the pivots are merely
aids, to
help define the price region for us.
Therefore whilst pivots are very important it is the volume which will also
help to
define the start of a congestion phase, and the pivot highs and lows are there
to help
to define the floors and ceilings of the trading range. If one or other is
missing, then
we simply revert to using our eyes and common sense.
The analogy I use here is when sailing. When we are sailing our boat, we
have two