$MU Respecting the CAM point - Pivot point strategy with a range bound SPY

DETERMINING IF IT WILL BE A RANGE VS. A TREND DAY USING A TWO-DAY RELATIONSHIP

Stocks that had a massive run and sell-off would need to rest or consolidate the following day, thus creating a range day and vice versa. Another key that I used to know if we are potentially in a trend day vs range day is by looking at the SPY’s daily chart. If the SPY’s daily candlestick is forming an inside bar, this is most likely a range day. If the SPY had a gapped up or a gapped down in daily candlestick, then we are potentially heading to a trending day.

There are several advantages to pivot points being calculated before the market opens such as traders being able to prepare ahead of time their size of position, their account size handling the targeted price, stop loss, and places to add on. Here’s how I use pivot points: I will buy when a stock touches the S3 support level using a protective stop loss at S4 level. I do the opposite when I am shorting the stocks. I sell when the stocks touch the R3 resistance level using a protective stop loss above the R4. Of course, I only do this if all my other indicators and levels are in agreement with these pivot point levels.

Price action is expected to hover around or gravitate towards pivot points. It gives us a directional bias for the day when we look at the price behavior in relation to the daily pivot levels on the chart. The second factor to watch out for in pivot levels is the relationship of the current pivot level from the previous day. The prior day’s trading activity can have a huge influence on the next trading day’s behavior. For example, some stocks that had a trend day the previous day will need some time to rest and consolidate which makes the following day a range day. Of course, it also depends on the particular stock catalyst and the rest of the indicators.

Traders get an edge in knowing what kind of trading day happened the previous day versus the current trading day by understanding the second day’s pivot point relationship.

For instance, if yesterday Range Day Trend Day was a trend day, today can be a range day and vice versa. The price where the market closes in relation to the pivot range gives traders an initial directional bias for the following session. The next day’s opening price will either confirm or reject this bias, which then alerts a trader on which direction the stock is heading.

Knowing the direction of the price allows the trader to plan ahead which enables the trader to enter the trade at the right side of the market. Not all pivot points are created equal. The one that I use when I trade is the one that gives me a directional bias based on the central pivot point (S3-R3) range.

A bullish bias is when today’s (S3-R3) range is higher than yesterdays. You can confirm the bias If yesterday’s closing price is above yesterday’s pivot point or if today’s stock opening price is above today’s pivot point. This is the strategy that I used in trading $MU as seen in the trading recap. If you want to learn more about the pivot point strategy, sign up on our free email alerts.