Pivots, how to buy and sell
I’d like to explain pivots and range pivots. These are probably the most basic yet most important rules I have learned in my years of experience trading the markets. It is a fact that a declining stock/ market can not go higher without a bullish pivot or bullish range pivot. Conversely, a stock or market in an uptrend will not head lower until after a bear pivot or bearish range pivot. Pivots and range pivots are the first sign of strength or weakness. Pivots are not a setup criteria. A setup criteria, such as ( overbought/ sold, valuation , seasonal, etc) tell you what to trade. Pivots tell you when to trade.
Pivots:
A bullish pivot occurs while in a down trend and is a day when the low is higher than the prior days low and the high exceeds the prior days high.
A bearish pivot occurs while in an uptrend and is a day when the high is less than the prior days high and the low is less than the prior days low.
Please see the chart below labeled pivots for a visual aid. The green highlight bars are bullish pivots and the red highlight bars are bearish pivots. The green arrows indicate a long trade and the red arrows indicate a short trade. I used a 10 day moving average to determine trend.
Range Pivots:
A bullish range pivot occurs in a downtrend and is a day when the stock or market rallies an increment of the prior days range ABOVE today’s opening price.
A bearish range pivot occurs in a uptrend and is a day when the stock or market declines an increment of the prior days range BELOW today’s opening price.
As an example if we are trading GE and yesterdays high was 20 and yesterdays low was 19 the range is ( high – low) = $1 , today GE opens @ 20.5, I will buy GE if it rises 30% of yesterdays range above today’s open. ( yesterdays range = 1 * 30% ) + 20.5 today’s open = enter long @ $20.8.
For a visual aid the chart labeled Range pivots highlights a strategy of entering the market on a bullish range pivot or shorting the market on a bearish range pivot . The thin green line that tracks above the open shows the spot for long entry’s and the thin red line shows the spot where shorts may be entered. The green arrows indicate a long trade and the red arrows indicate a short trade. I used a 10 day moving average to determine trend.
Below you will find performance report statistics based on the pivot and range pivot concepts explained. As a comparison I also show the performance report statistics of a random entry and 7 day exit. I used a 7 day exit because that is the average trade length of the Pivot / range pivot in shorts and longs. Each backtest was run on, every one of the S&P 100 stocks since 1962 , than all of the performance reports were combined for the statistics shown below. You can see that bullish/ bearish pivots and bullish range/ bearish range pivots clearly do outperform the random market entry, in all of the most important performance measurement criteria’s listed.
Take some time and look at some charts of any stock or market, you will clearly see that every major top and every major bottom is accompanied with a pivot and or range pivot. The next time you are looking to enter or exit a trade remember these very simple rules and your trading results will almost certainly improve.
I’d like to explain pivots and range pivots. These are probably the most basic yet most important rules I have learned in my years of experience trading the markets. It is a fact that a declining stock/ market can not go higher without a bullish pivot or bullish range pivot. Conversely, a stock or market in an uptrend will not head lower until after a bear pivot or bearish range pivot. Pivots and range pivots are the first sign of strength or weakness. Pivots are not a setup criteria. A setup criteria, such as ( overbought/ sold, valuation , seasonal, etc) tell you what to trade. Pivots tell you when to trade.
Pivots:
A bullish pivot occurs while in a down trend and is a day when the low is higher than the prior days low and the high exceeds the prior days high.
A bearish pivot occurs while in an uptrend and is a day when the high is less than the prior days high and the low is less than the prior days low.
Please see the chart below labeled pivots for a visual aid. The green highlight bars are bullish pivots and the red highlight bars are bearish pivots. The green arrows indicate a long trade and the red arrows indicate a short trade. I used a 10 day moving average to determine trend.
Range Pivots:
A bullish range pivot occurs in a downtrend and is a day when the stock or market rallies an increment of the prior days range ABOVE today’s opening price.
A bearish range pivot occurs in a uptrend and is a day when the stock or market declines an increment of the prior days range BELOW today’s opening price.
As an example if we are trading GE and yesterdays high was 20 and yesterdays low was 19 the range is ( high – low) = $1 , today GE opens @ 20.5, I will buy GE if it rises 30% of yesterdays range above today’s open. ( yesterdays range = 1 * 30% ) + 20.5 today’s open = enter long @ $20.8.
For a visual aid the chart labeled Range pivots highlights a strategy of entering the market on a bullish range pivot or shorting the market on a bearish range pivot . The thin green line that tracks above the open shows the spot for long entry’s and the thin red line shows the spot where shorts may be entered. The green arrows indicate a long trade and the red arrows indicate a short trade. I used a 10 day moving average to determine trend.
Below you will find performance report statistics based on the pivot and range pivot concepts explained. As a comparison I also show the performance report statistics of a random entry and 7 day exit. I used a 7 day exit because that is the average trade length of the Pivot / range pivot in shorts and longs. Each backtest was run on, every one of the S&P 100 stocks since 1962 , than all of the performance reports were combined for the statistics shown below. You can see that bullish/ bearish pivots and bullish range/ bearish range pivots clearly do outperform the random market entry, in all of the most important performance measurement criteria’s listed.
Take some time and look at some charts of any stock or market, you will clearly see that every major top and every major bottom is accompanied with a pivot and or range pivot. The next time you are looking to enter or exit a trade remember these very simple rules and your trading results will almost certainly improve.
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