By Paul Lange, Moderator of Pristine's Educational Trading Room, 
and Private Mentor in Pristine's Private Mentorship Program

Significant Daily Pivot Points
By Paul Lange

When you look back at daily charts of stocks or indices, they will always have certain things in common. Most stocks will spend the majority of their time trading in a sloppy, non-directional pattern. You will always find some trends, and you will always find key areas on the chart that set significant highs or lows that last weeks or months. Today's lesson is about finding those key areas and capitalizing on them.

When stocks are in a nice trend, a consistent pattern develops. These are the ones that we like to trade the most. They have a clean up trend, or a clean down trend, or even a clean sideways trend. After all, there are only 3 ways a stock can trend, correct? By clean I mean that the bars on the chart tend to follow support and resistance lines (major, minor, or a trend line), they respect moving averages in a consistent way, and continue in the same direction for long periods of time. The bars do not over lap, nor are there spaces between them (both of these caused by gaps). Most of the prior Trading Lessons, as well as a good part of Trading the Pristine Method® (TPM) Part 1 are about finding these gems.

What happens when the stock breaks tradition? Changes trend? Falls abruptly then reverses? Many of the patterns we know become worthless. Is all lost? No. We also teach concepts regarding Guerrilla strategies in TPM1, and concepts regarding Wide Range Bars, Gaps, and failed expectations in TPM2 that can help. These concepts can help you do what most say cannot be done. That is, to pick short term to medium term tops and bottoms with amazing accuracy. Lets take a look at the chart below.


I did look for a chart that would be a nice example to your as this lesson. However, I have to tell you, I did not look hard or far. Examples of what I am going to show you are all over. We do this in the Pristine Method® Trading Room on a regular basis, and I take stocks at random.

The MCHP daily chart is used above. It is generally speaking in an up trend, as shown by higher highs and higher lows. Since we are in an up trend, I simply identified the long-term bottoms that were formed. These are arrows A, B, and C. Were these areas 'playable'? Lets take a look.

Arrow 'A' is a Guerrilla Tactic we teach. It is called a Bullish 20-20 play. The key to the formation is that last big red bar just before the arrow. The stock had six lower highs, and then had the largest 'sell-off' (red) bar in recent history. This is a Wide Range Bar (WRB) or a 20/20 Bar (meaning less than 20% tails), which sets up the play. This happens on increased volume. The stock opened flat the next day, and the strategy is to go long over the high of the day after 30-minutes of trading. This set a low that has not been violated to date. Besides being a viable trade, this was a high volume Guerrilla Tactic that changed the short-term direction of the daily chart.

Lets look at Arrow 'B'. This is a Guerrilla Tactic is called a Minor Bullish Mortgage Play. The pullback going into 'B' is starting to look bearish. We were not able to stay above the moving averages, and the pullback challenges the prior low. Going into 'B' we have 4 lower highs (6 out of 7 also). Then a WRB forms again (not as big as some, which is why this is labeled 'minor'). Then the stock gaps opens at or above the high of the prior days bar. Note that MCHP closed at the bottom of that red bar, then opens the next day near the top. The stock sets a higher low, which has not been violated to date.

Next we have Arrow 'C'. We have another Guerilla Tactic known as a Bullish Gap and Snap Play. Again, five days down followed by a Bearish (red) WRB. This time the stock gaps down, setting up the long entry as the stock penetrates the low of the prior day (or sometimes a five minute high if it is a Gap and Snap Plus Play). Again, MCHP sets a higher low, which has not been violated to date. Look at the increased volume at the low. Once again, a high volume Guerrilla Tactic that changed the short-term direction of the daily chart.

There are so many other points to be made. Look at the tops. Remember, the general trend is up, so we are not looking for major chart changing reversal at the top. However, notice how all the pullbacks start with a Topping Tail after a multiple bar run. These are the four circles. Notice the Wide Range Bar (labeled WRB) break out that is never challenged. There are many other valuable clues. Some of these will be the topics of future lessons.

Identifying key areas like this is your goal on the daily chart when clean trends are not as common. Note that Pristine ESP™ has scans that would find all of these plays we have reviewed and much more in real time.

Good Trading.


DISCLAIMER: Information for the stock observations was obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the stock observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein.

Affiliates of Pristine.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the strategies described above.



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