How to Calculate the Pivot Point

…The pivot point can be calculated as the stock is forming the handle on a cup-with-handle base. The ideal buy price would be $0.10 higher than the highest spot during the handle, also know as the top of the right side of the base. The highest point can be the intraday high and not always the closing price of the stock. If the stock closes at the high for the day, then we will use this number. We look for the ultimate high on the beginning stages of the handle.

The exact methods used for finding pivot points vary depending on the base that is forming.

On a flat base, you would look for a move $0.10 higher than the top point on the left side of the base or the start of the formation.

A saucer-with-handle would follow the same rules as the cup-with-handle.

A double-bottom formation would set the pivot point at $0.10 higher than the middle peak in the “W”.

As I mentioned in the previous blog post, we do not buy until the stock triggers the pivot point on above average volume also known as qualifying volume. This is the area where the stock faces the least amount of resistance as all overhead sellers are gone as we break into new high territory. The pivot point usually comes within 5% to 15% of the stock’s old high. Try not to buy a stock after it is 5% above the proper pivot point. This does not mean that we can’t buy on normal corrections and pullbacks as the stock remains in an uptrend. The rule only applies to the pivot point area as the stock becomes extended.

Piranha