Original subtitles

Many traders find themselves wondering whether it is better to work with the

ends of the body or with the ends of the candlestick when drawing lines to

analyze potential reversal zones.

Traders who anchor their lines on the end of the body and up to the end of the

wick create areas of imbalance between supply and demand and hope that a new

reversal will occur in these areas in the future, possibly providing a trading

opportunity.

Other traders, including myself, prefer to identify the area from the end of the

wick. As we can see on the chart, most of the time the price goes right through

the zone that the first type of crater establishes, from the closing price to

the extreme, in a pattern of false breakouts from previous highs and lows.

On rare occasions, the market will generate a powerful reversal without a

breakout.

The reason is related to the creation of pivots and the location of limit orders

pending execution.

A pivot is simply a price formation that creates a turning point or pivot in the

market. The pivot is created with at least two candlesticks to the left and

the right of the one that reaches the pivot point. The power of pivots lies in

the use they have for the participants, since, in general, these points are

where we usually place our orders and enter and exit the market.

A large number of these orders tend to be located in the vast majority of

pivots. And the greater the strength of the pivot, the more candlesticks there

are to the left and to the right, the greater the liquidity located at the

point. This is why the greater the number of candlesticks used to create

pivot, the greater its strength, because there will be more liquidity at this

point. And therefore, the trend movement that originates later will probably

have greater strength.

In my view, for this reason, it is more interesting to wait for the price to

break through that zone rather than simply test it.

A breakout in these zones is the key behavior we should wait for before

considering entering the market.

Basically, because of the implications it has, if, after visiting said zone,

price turns and reacts denoting aggressiveness, it is likely that large

have taken advantage of this movement to assume the liquidity they need to build

their position, leaving the path of least resistance quite clear.