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What Are Pivot Points?

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Lee Bohl:   Let's take a look at what are called pivot points on the intraday charts and maybe you can explain to us what they are and how you use them here.

Kevin Horner:  So here, everyone, this is absolutely right. This is really an entry opportunity that I look at when I'm considering entering a position, especially on my initial entry. Notice how the gap move on the open took us down to S2. We rallied in the S1 here and then it took a little bit of time to get back up above it. Right?

So now I'm keeping an eye no S1, and what I love about these is that they can give you an opportunity to enter at a time where you otherwise would be looking at the daily chart and saying, "Boy, that doesn't quite look as good as I would think." But you can find these bands of expansion where the selling gets too far and you can step in line there, or when the buying gets too exuberant and you can exit a position to the upside.

 Lee Bohl:  Right.

 Kevin Horner:  That's exactly how I like to utilize the pivot points here. Remember these are only going to be available on your intra-period charts, everyone, so if you're adding them make sure you're on an intraday chart in order to do so. But I do like to work with these from an entry/exit standpoint, and like you said today here, Lee, that S2 line at 50.53 could very well be an opportunity from a short-term standpoint to say if this is not going to hold, break of that S2 line would tell me it's time to move on.

Lee Bohl: Right. The pivot points don't necessarily tell you what's going to happen, but they do let you set your risk level where things could happen.

Kevin Horner:  Right.

Lee Bohl: I mean technical analysis is just trying to give you a ways to manage your risk. It's not totally predictive. What I would say here also is pivot points are based on the previous day's range and where the close is within that range, and it's an old floor trader tool. We talked about some people only get into pullbacks when you take out the previous day's high.

Now we're saying, since we had that test of the ten-day moving average, I might get in a little earlier if we can hold above S1, but I would get even more aggressive if we can trade back above the pivot, because the pivot is considered to be the equilibrium point during the  day, and generally speaking when we're above the pivot you kind of buy the dips when you're below the pivot.

Kevin Horner:  Sure.

Lee Bohl: You sell the rips, as they say.

Kevin Horner:   Yeah.

Lee Bohl:  So two entries possibly here. You could make sure it holds S1 before you buy. Again, probably put a stop under S2 for short-term trading, or if you wanted to be a little bit more conservative you might want to pay a little bit up till you're above the pivot and then maybe have a, you know, for a real short-term trade maybe a stop under S1.

Kevin Horner: Yeah, I agree with you. I could see this acting as a short-term support, and really we're at a kind of a crux point for the stock, at least on an intraday basis here, from what I'm seeing.

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Schwab does not recommend the use of technical analysis as a sole means of investment research.

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