An uptrend is a series of upswing pivots (USP) and a downtrend is a series of downswing pivots

(DSP).

Pivots can form in 2 different ways

1) When a USP is broken, the prior highest high becomes the new downswing pivot. When a DSP is
broken the prior lowest low becomes the new upswing pivot.

Example:

In the chart below (NF_Pivot1.gif) when the USP @ 5617.5 breaks, the trend turns down and the prior
highest high which is 5759.95 becomes the new downswing pivot.

2) When a rejection in an uptrend leads to new recovery highs, the lowest low preceding the rejection
becomes the new USP. A much simpler way of identfying the same is to find the lowest point between
the prior highs and the new recovery highs.

Similarly, When a rejection in a downtrend leads to new lows, the highest high preceding the rejection
becomes the new DSP. A much simpler way of identfying the same is to find the highest point
between the prior lows and the new lows.

Example:

In the chart below (NF_Pivot2.gif), after the pivot (DSP) break we start uptrending. Then we get a
rejection from the 34 EMA. I have marked the prior high and new recovery high in pink circles. The
lowest low point betwen those two circles is the new USP. In this example we get a series of 4 USPs
before the trend changes.

Role of RSI(5) in identifying pivots

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We need a valid rejection for pivots to be formed. RSI(5) should be used to resolve the ambiguity
about rejections. If a rejection occurs with a touch of the 34 ema then it's a valid rejection and then
there is no need to use the RSI(5).

If the rejection occurs by the price coming close to the 34 ema, but not touching it, then check the
RSI(5).

(i) In an uptrend, if the RSI(5) is oversold (below 30) prior to the rejection, then it can be considered
a valid rejection
(ii) In a downtrend if the RSI(5) is overbought (above 70) prior to the rejection, then it can be
considered a valid rejection.

Examples:

Chart (NF_Pivot3.gif) - 34 EMA not touched, but RSI(5) oversold. Hence, a valid rejection.

Chart (NF_Pivot4.gif) - 34 EMA not touched and RSI(5) not overbought. Hence, not a valid rejection.
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