Constructing peak-trough swing reversals

Zigzag swings set the working trend

Price trends are constructed as zigzag swings of rallies and reactions rather than as straight-line moves. The working trend is read from the sequence of peaks and troughs on a swing chart.

A series of rising peaks and rising troughs remains the working uptrend until a failed new high is followed by a break of the prior trough, which completes a declining-peak-and-trough map. A series of declining peaks and troughs is treated as reversed when a trough holds above the prior low and a later rally posts a new high.

Gate one, a legitimate peak or trough

This editorial article teaches the construction as a two-gate drill. Gate one accepts a swing turning point only after the price or time test below.

A peak or trough is treated as legitimate when the counter-swing retraces about one-third to two-thirds of the prior leg. That price test is the Fibonacci retracement in this construction. A shallower pause can still count when it lasts about one-third to two-thirds as long as that leg. That duration test is the time-filter.

A percentage-reversal swing overlay, illustrated at a 4 percent filter, marks a new wave whenever price reverses by that amount and thereby plots an objective peak-and-trough map.

Gate two, both series must turn

Gate two, in this editorial framing, marks the trend reversed only after both the peak series and the trough series have turned.

If only the latest trough or only the latest peak reverses, the construction is a half-signal. A later new high can cancel the alert. A full reversal is marked only after both series turn.

Line-range, trendline, and swing length

A breakout from a sideways range can be treated as the equivalent of a swing rally or reaction because it breaks several minor support or resistance turning points at once. In this construction that sideways pause is a line-range.

Swing-reversal construction is meant to be combined with other chart conditions, including a trendline break, rather than used as a lone entry rule. A trendline can support a swing reading, but it is not treated as a complete trend-change rule on its own.

The longer the swings take to form, the more significant a completed peak-and-trough reversal is treated. Hourly swings rank below multi-month intermediate swings, which can imply a primary move lasting a year or more.