Rethinking Market Structure — Part 2: Taking Pivots LiterallyNAS100GBEBROKERS:USTECarnipoer=== Rethinking Market Structure — Part 2: Taking Pivots Literally === Welcome to the first update of our journey. If you open the settings of the updated "OMSF Learning Space" on this chart, you will find that the "Recap" module is now active by default. Today, we are taking classic Pivot Points at their literal word: as mechanical turning points of the market. The Simplest Trend Filter in the World It only knows two conditions: UpTrend or DownTrend. The rules are dead simple: When a Pivot Low is confirmed and locked in, we simply claim the market is now in an UpTrend. When a Pivot High is confirmed and locked in, we claim the market is now in a DownTrend. Paint it red and green, and boom — you have a functioning Trend Filter. Before we dissect our filter, let's look at some general thoughts regarding the term "Market Structure." Generally speaking, we talk about an uptrend when we see higher highs and higher lows on the chart. Lower highs and lower lows tell us the price is in a downtrend, while equal highs and lows characterize a sideways phase. Price action structure is not uniform; it lives in visual layers defined purely by price behavior, independent of clock time. If you look at the chart on your screen, you will notice a few lines that I have drawn manually: Secondary Market Structure (Thin, Light Yellow Lines): This is the minor zig-zag — the internal swing structure. Primary Market Structure (Bold Annotations): This is the dominant macro framework. The heavy, overarching waves that provide the broader environment in which our current move takes place. When I speak of market structure, I imply—and I think most other authors and traders do as well—that these are the concepts behind it. It makes communication much easier when we all speak the same language. By the way: The published chart is set to the 2-hour (H2) timeframe. If you shift it down to M10, it is a bit like putting the structure under a microscope. You will see that our secondary H2 structures suddenly "mutate" into the primary structure of the M10 timeframe. Now, here is my first major learning, and I mean this with a healthy dose of pragmatic understatement: Classic Pivot Points actually live up to their name. For a concept this simple, the filter performs surprisingly well. What do I mean by that? Switch off the manual drawings (click the eye icon in the toolbar) and look at our Pivot Filter. The price is on the correct side of the pivots most of the time, isn't it? In the default settings, this means: if the lowest low of the last 10 bars has not been breached, it very likely represents a significant price level that will hold for the near future, allowing us to orient ourselves back upward. The exact same logic applies in reverse to the highest high of 10 bars that has survived for at least 10 subsequent bars. With all pivot parameters set to 10, the indicator describes quite accurately what I defined above as secondary market structure. If you crank the parameters up (ideally symmetrically) and try a length/confirmation duration of 20 or 30, it will describe the primary market structure instead. Let's run a quick experiment in the settings: Reset the parameters to default first (open the Learning Space settings, go all the way to the bottom, click the menu, and select "Reset settings"). If you shorten the Right Length down to 5, our trend condition locks in much earlier, giving us the chance to catch more of the subsequent move. At the same time, however, you will notice that the price ends up on the "wrong side" of our filter much more frequently. Okay, before we fly too high: If you look closely at the chart, you will immediately spot the limitations of this raw approach. It completely ignores sideways consolidations, resulting in a constant "flip-flop" during choppy price action. Furthermore, if a trend accelerates and breaks key levels without confirming a new historical pivot first, the filter freezes, and we entirely miss some beautiful, strong movements. One way to potentially optimize this simple state machine would be expanding the states by adding a breakout rule. For example: UpTrend triggers if a Pivot Low is locked OR if the Candle Close breaks above the Pivot High. Do you find this to be a concept worth analyzing? Additionally, you will quickly realize that by the time a signal finally locks in, the initial impulse is already gone. More often than not, the trend filter turns green right when the market is already deep into a Bull Flag pattern (are you familiar with the term?). This leads us to my second major learning and a interesting structural observation: Our Pivot Trend Filter is likely more of a descriptive tool, not a proactive signal generator. So, what is it good for? Objectifying market conditions is excellent for developing and testing systematic setups. Let's look at a classic multi-timeframe example: The Higher Timeframe (Context): You use the filter on a higher timeframe, like the 2-hour chart (H2), to objectively capture the dominant market direction. The Lower Timeframe (Execution): You drop down to a lower timeframe, like the 10-minute chart (M10). Your rule is simple: You only trade trend reversals on the M10 that align with the overarching H2 trend filter (e.g., only buying on M10 when H2 is green). By doing this, you create absolute, objective entry conditions. Since the filter is purely mechanical, you can now systematically tweak and test the parameters (like changing lengths or thresholds) to see how they impact your historical backtest results (Profit Factor, Drawdown, Win Rate). Once you learn to trust the descriptive consistency of your higher timeframe filter, you stop guessing—and start executing a truly rule-based system. While I prepare the next update of the Learning Space—featuring the promised introduction to the Kaufman Efficiency Ratio (KER)—you can play around with the filter and gather your own impressions. Vary the pivot parameters (higher/lower, symmetrical/asymmetrical), the timeframes, and the markets. Scroll through the chart history, zoom in, and zoom out. Doing this often gives me completely new insights or ideas for new setups. If you experience the same, feel free to share it in the comments (it is highly likely that your feedback will influence the future course of this tutorial🙂). And don't worry: in the OMSF Learning Space, there is no right or wrong—only learning and exchanging ideas. When we bring the KER into play next week, we will finally be able to back our visual impressions with solid numbers. I hope you are on board again! — arni