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

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

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analyze potential reversal zones.

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

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

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

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opportunity.

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

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

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

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

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

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breakout.

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

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pending execution.

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

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

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

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

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

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

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

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

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

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

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

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have greater strength.

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

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break through that zone rather than
simply test it.

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

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considering entering the market.

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

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

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

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