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Learn to Calculate a Stock's Pivot Point

Posted on January 4, 2022 by Chester Etheridge

Stocks breakout from correctly formed bases everyday but most investors do not know how to find a pivot point or what patterns to research that may contain this exact important buy signal. A pivot point could be described as the best buy point or the place at the end of a comfortable base pattern in which the stock breaks out into new high territory. William O'Neil, the founder of Investor's Business Daily is considered the leader of the pivot point these days. As Jesse Livermore describes in his book (1941), the pivot point is also called the point of least resistance. When a stock breaks the point of least resistance, we're presented with a chance where a stock has the best possibility of moving higher in a short time period, particularly when volume accompanies the breakout.

The pivot point can be calculated as the inventory is forming the deal on a cup-with-handle base. The perfect buy price would be $0.10 higher than the maximum spot during the handle, also know at the top of the ideal side of the foundation. The intraday high can qualify at the maximum point and does not need to be the final price of the stock. If the stock closes at the high for the day, then we'll use this amount as the high point.

The specific methods used for finding pivot points vary based on the base pattern that's forming on a daily or weekly graph.

When a flat base happens, an investor should look for a transfer $0.10 higher than the top point on the left side of the foundation or the beginning of the formation.

A saucer-with-handle follows exactly the same principles as the cup-with-handle and is described in detail above.

A double-bottom formation activates a pivot point which will be $0.10 higher than the middle peak in the"W" shaped pattern.

Many investors will attempt to cheat the rules and put a position prematurely before the stock breaks out and moves the pivot point. I don't suggest purchasing until the stock triggers the pivot point on above average volume also called qualifying volume. The place considered as the smallest amount of resistance is weighed so heavily because all overhead sellers are gone as we split into new high territory. The pivot point usually comes within 5% to 15% of the stock's old high 52-week high.

Do not chase a stock that's 5 percent or more above the correct pivot point. This does not imply that you can't purchase on regular corrections and pullbacks to encourage or moving averages, particularly if the stock remains in an uptrend. This principle only applies to the pivot point area as the stock gets extended. If you purchase with the pivot point and market when a stock drops 7-10% from the pivot point, I guarantee that your annual performance increases dramatically.