Can you tell me how the exact pivot point is determined? (May 20, 2002)
The pivot point is a phrase that is equivalent to the 'buy point' on the reports. The buy point was named this by many traders as it is said to act as the crucial point that 'pivots' a stock out of its prior range and over the resistance that is at the top of that range.
The pivot point is determined based on the type of pattern. In the classic signature patterns such as a double bottom or cup with handle, the point is fairly well defined. In a double bottom for instance the pivot point is the high in the middle 'hump' of the pattern. When a stock clears that point, it has broken free of the resistance that pushed the stock lower on its first rebound before the second leg to the downside shook out the last sellers. In a cup with handle the pivot is over the intraday high in the handle; when a stock clears that point it has moved past all of the overhead supply that held it back as the last sellers were shaken out in the handle's slightly declining price after the stock almost hit the old pre-correction high.
In less defined patterns such as a 50 day MVA bounce we look at prior closing and intraday prices as well as prior resistance to see where on the bounce any resistance will be cleared. If there is no prior resistance, we let it clear the predominant intraday high on the way down. It is less exact and takes more of an eye for the stock action, but if we see a strong bounce on strong volume for a strong stock, we are not going to quibble too much.
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