Posted by forex at 3:13 AM
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1. Analyze the stock chart. Pivots occur around major areas of resistance. For example, if a stock trades in a range between $20 and $25, $25 may be your starting point in calculating the pivot.
2. Get the highest price in the resistance area---the price above which the stock has failed to rise repeatedly---and add 10 cents. For example, $25 may be considered a general area of resistance but the highest price in that area was $25.63, so your pivot is $25.73.
3. Watch for the stock to break through the pivot on above-average volume to validate it.
4. Be flexible. Pivots can be approximate, an exact price point or an area of congestion. The key is a strong move through the pivot on above-average volume. If a stock makes an indecisive move on tepid volume and falls back below the pivot, the pivot may need to be reset. Sometimes a stock will zoom through the pivot and never look back; other times it may struggle around it for a few days until it finally overcomes resistance and moves higher. The important thing is not the pivot's exact numerical value but overwhelming evidence that a move of significance has just started.