Monday, July 03, 2006

pivot point

The pivot point is found by summing the high, low and close then dividing by 3. Statistically the next day's price will trade through the pivot point either higher or lower or both. One day while playing around with the pivot point of a stock I discovered something valuable. I found that if I averaged the pivot point and averaged the closing price and plotted them together on a single chart I would get something that looks like this.

What you see is the actual close, the pivot point 5-period average in black, and the closing price 5-period average in red. I've annotated the highs and lows. Generally when the closing price average crosses over the pivot point average it usually means a good run up is coming and when the pivot point crosses over the closing price from above it generally leads to a good short.

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