# Pivot points, market structure & the three phases of major trends ## Dow Theory — Foundation Charles Dow is the grandfather of technical analysis. He co-founded the Dow Jones Industrial Average (1896, still running today) and the Wall Street Journal. His work was done without computers — all manually charted with pencil and paper. The other three TA Titans built on Dow's work: - **Ralph Elliott** — developed Elliott Wave Theory (wave structures driven by collective investor psychology). Dove deeper into the patterns within Dow's phases - **Richard Wyckoff** — developed the Wyckoff Method, going deeper into exactly what accumulation and distribution phases look like (signature patterns) - **W.D. Gann** — theories on price, time, and geometry. Everything runs on time cycles (life, weather, seasons — financial markets are no different) ### The 6 Tenets of Dow Theory Each tenet is covered in depth throughout the course. Summary: 1. **The averages discount everything** — all available information (economic, political, market) is already reflected in price. "Buy the rumour, sell the news" — if you're hearing about it, professionals already knew 2. **The market has three trends** — Primary (long-term), Secondary (medium-term), Minor (short-term). A common mistake: wanting to invest long-term but taking entries on minor short-term moves 3. **Primary trends have three phases** — Accumulation, Public Participation, Excess/Distribution *(this week's focus)* 4. **A trend persists until its reversal is indicated** — like Newton's first law: a trend stays in motion until acted upon. There are only three ways a trend can reverse *(covered in Week 3)* 5. **The averages must confirm one another** — a trend needs confirmation from multiple sources, just like you'd research a major purchase from multiple angles, not just one data point 6. **Volume must confirm the trend** — volume should rise with the trend. Big money can mask price action but they can't mask volume — you can't hide how many units were bought or sold --- ## The Three Phases of a Primary Trend A bull market is broken into three phases: Accumulation → Public Participation → Excess. Then it reverses through: Distribution → Public selling → Panic. Then it resets. [![Three phases diagram](https://pdb.conorbriggs.com.au/uploads/images/gallery/2025-12/scaled-1680-/3iQL7GVYRHcRt0EI-image.png)](https://pdb.conorbriggs.com.au/uploads/images/gallery/2025-12/3iQL7GVYRHcRt0EI-image.png) ### Phase 1: Accumulation - Occurs after a prolonged decline or bear market - Smart money / experienced investors start buying undervalued assets (just because something is down bad, doesn't mean it can't go down more) - Market sentiment is very pessimistic — "this thing sucks", everyone expects it to keep going down - Low trading volumes and gradual price stabilisation - Key insight: "If everyone's bearish, who's left to sell?" — that's often where it finds a bottom - Can last years (Microsoft went sideways for 14 years after the tech bubble, FMG went sideways for 10 years after the GFC) **The Spring / Liquidity Grab:** During accumulation, big money often pushes price below the bottom of the range before sending it up. Why? Anyone who bought support had stop losses just underneath — big money grabs that liquidity, shakes people out, then sends it. If something breaks out of a major sideways range to the downside and pops straight back in — that's actually a sign of strength (a "spring"). The opposite applies to distribution: a pop above the range that falls back in is a sign of weakness. ### Phase 2: Public Participation - Momentum builds as more investors recognise the trend - Media and public interest increases — some positive news articles, battle between bulls and bears - Price rises significantly due to higher demand - **This is usually the longest phase** — where the most gains come from - Increased trading volumes - Positive market sentiment, with a taste of euphoria toward the very end - The really savvy investors get in early in this phase, majority get in mid-to-late ### Phase 3: Excess - Smart money begins selling at higher prices - Can manifest as a **blow-off top** (fast spike then fast sell-off) or a **long sideways distribution** - Overvaluation concerns arise but people start ignoring them ("maybe the market just likes it at this price") - Sentiment is overly optimistic or euphoric — you'll struggle to find anyone saying anything bad about it. 90% bullish - **Declining trading volumes despite higher prices** — price going up but volume not confirming (Tenet 6) - Signs of reversal or instability may appear but average investors won't recognise them ### The Sentiment Cycle The emotional progression through the phases: **Bull market (going up):** Disdain → Skepticism ("just a dead cat bounce") → Caution → Growing confidence → Conviction → Peak Greed/Euphoria **Bear market (coming down):** Hope ("just another zig-zag") → Worry → Fear ("what have I done") → Disgust → Disdain Peak fear at the bottom. Peak greed at the top. Every time. ### Corrections Between Phases (Craig's Key Rule) - After accumulation ends → expect a **1/3 to 2/3 pullback** of the accumulation gains - After public participation ends → expect a **1/3 to 2/3 pullback** of the public participation gains - After excess ends → you don't just correct the excess. **You correct the ENTIRE move** from the start of accumulation to the top of excess. These are the major resets (GFC wiped 57% off S&P, crypto cycles pull back 80%) This is why getting caught buying in the excess phase is so dangerous — you're not just giving back the excess gains, you're giving back everything. It can take 6-13 years to recover. ### Phases Within Phases (Fractal Nature) Each major phase contains its own sub-phases of accumulation, public participation, and excess. The more you zoom in, the more sub-phases you see. This concept is the foundation of Elliott Wave Theory (Term 3). Example: The S&P 500 since 2009 has a big accumulation, big public participation, and big excess phase. But within the big public participation, there were smaller accumulation, public, and excess sub-phases. ### Commodity vs Equity Phase Differences - **Equities/Indices:** Public participation is the dominant, longest phase. Accumulation and excess are often similar sizes - **Commodities (and commodity stocks like lithium, gold, uranium miners):** The excess phase can be disproportionately massive — huge blow-off tops. Public participation can be relatively smaller ### Examples - **Bitcoin 2018–2021:** Sideways accumulation 2018-2020, public participation started when 20K broke (savvy ones got in at 12K), excess phase when everyone was talking about "who's buying next after Tesla" — they distributed into the good news - **Microsoft:** Parabolic into 2000 tech bubble, crashed, went sideways for 14 years (accumulation), broke out ~$37 resistance, then public participation trending up - **FMG:** Massive spike pre-GFC, crashed to $1, accumulated for 10 years at $1-7, broke out and ran to $23+ - **Core Lithium:** Went up 9,700% — but most holders didn't get out and gave it all back (lost 96% from top). Perfect example of why understanding excess phase matters --- ## Pivot Points **If you cannot identify pivot points, you cannot identify market structure. If you cannot identify market structure, you cannot identify a trend.** This is the literal backbone of technical analysis. ### How to Identify Pivot Points 1. **Look for 3 candles moving in the opposite direction** — this is not a textbook rule, it's a beginner-friendly method to stop you getting faked out on tiny moves. ~90-95% of pivot points will follow this rule 2. **They don't have to be 3 red or 3 green candles** — they can be a mix of colours. You're looking for the overall direction changing (3 candles moving the opposite way to the primary move) 3. **Exceptions:** During elevated market volatility, 1-2 very large candles can count as a pivot (e.g. a big bullish engulfing candle on its own) 4. **Craig's clarification:** The 3-candle rule is a *guide* to prevent you marking 100 tiny pivots that add no value. What you're really looking for is significant peaks and significant troughs. If it's just undulating noise, you probably don't need a pivot there ### Pivot Point Shapes [![Pivot point shapes](https://pdb.conorbriggs.com.au/uploads/images/gallery/2025-12/scaled-1680-/NrObA2cQiMtpdgiL-image.png)](https://pdb.conorbriggs.com.au/uploads/images/gallery/2025-12/NrObA2cQiMtpdgiL-image.png) - **V-shaped:** Rapid, sharp reversal — price quickly changes direction. Most common - **U-shaped:** Gradual shift — price hangs around the bottom/top sideways for a bit before reversing ### Swing Highs and Swing Lows Pivot points are also called swing points: - **Swing High (H):** Pivot at the top where sellers step in — identifies resistance levels - **Swing Low (L):** Pivot at the bottom where buyers step in — identifies support levels ### Practical Tips for Marking Pivots - Use the **highlighter tool** in TradingView (small dots) to mark pivots - Colour code: **green dots** for lows/buyers, **red dots** for highs/sellers — green=go, red=stop - **Line chart trick:** Switch from candles to line chart to more easily see pivots when the wicks and candles are clouding your judgment. It strips away the noise and shows the pivots clearly - **Hold Ctrl + click** on a dot to drag-copy it (saves time vs recreating each one) - **Start on the weekly timeframe** — Dow himself never traded below the daily because it was all manipulated noise. The lower you go, the harder it gets. Weekly for the first 6 weeks minimum --- ## The 3 Types of Market Structure There are only 3 things a market can do: go up, go down, or go sideways. The first thing you should do when pulling up any chart is identify pivot points, then identify market structure. **"Market structure is king"** — when you go against market structure, that's when you lose. [![Market structure types overview](https://pdb.conorbriggs.com.au/uploads/images/gallery/2025-12/scaled-1680-/cnPw88tMRCR85UDA-image.png)](https://pdb.conorbriggs.com.au/uploads/images/gallery/2025-12/cnPw88tMRCR85UDA-image.png) ### Bullish (HH / HL) - The market is going up - Marked by consistent **higher highs** and **higher lows** - Pivot peaks are higher than the previous highs — signals increased demand and optimism (sellers selling higher each time) - Pivot lows are higher than previous low — signals resilience, buyers stepping in higher each time (buyers believe it won't go back to the old price) - Think: "Why are they buying at $18K when last time they didn't buy until $16K? Why are they selling at $20K when last time they sold at $18K?" — that's a strong uptrend [![Bullish market structure](https://pdb.conorbriggs.com.au/uploads/images/gallery/2025-12/scaled-1680-/YyqXAL9tCe2h9LPM-image.png)](https://pdb.conorbriggs.com.au/uploads/images/gallery/2025-12/YyqXAL9tCe2h9LPM-image.png) ### Consolidation (EH / EL) - Market moving sideways - No clear trend — equal highs (selling at roughly the same level) and equal lows (buying at roughly the same level) - Traders look for breakouts (above EH = potential uptrend) or breakdowns (below EL = potential downtrend) [![Consolidation market structure](https://pdb.conorbriggs.com.au/uploads/images/gallery/2025-12/scaled-1680-/HJO4k88RUPmHIMiY-image.png)](https://pdb.conorbriggs.com.au/uploads/images/gallery/2025-12/HJO4k88RUPmHIMiY-image.png) ### Bearish (LL / LH) - The market is going down - Lower Lows: each trough is lower than the previous — buyers waiting for lower prices each time - Lower Highs: each peak is lower than the previous — sellers stepping in earlier each time, don't believe it will reach the previous high - Think: "Why are they selling at $22K when last time they were selling at $23K? Why are they buying at $19K when last time they bought at $21K?" - Can be good for shorting ### Market Structure Change Confirmation **You need BOTH to confirm a change:** - Bullish change: need a **higher high AND a higher low**. Getting just a higher high with a lower low is NOT a change — buyers are still coming in lower (still bearish) - Bearish change: need a **lower low AND a lower high**. Getting just a lower low without a lower high is NOT confirmed ### Connecting Pivots Draw a line connecting your pivot points to visually see the trend direction. This makes it obvious when you transition from uptrend → sideways → downtrend. ### Transition Through Phases Using Market Structure Markets transition: Uptrend (HH/HL) → Sideways (EH/EL) → Downtrend (LL/LH) and vice versa. The phases map directly: Accumulation = sideways (EH/EL), Public Participation = uptrend (HH/HL), Excess = potentially still making highs but with warning signs, Distribution = begins transition to LL/LH.