Understanding Pivot Points - The Optimal Buying Point for Breakout Traders
Hello everyone!
Pivot points (pivot points) are an important concept in breakout trading. They represent the optimal buying points - where Supply overwhelms Demand, leading to a strong trending movement.
This article will delve into the concept of pivot points, their history, and how to determine them to use effectively in your trading strategy.
What is a Pivot Point ?
A pivot point (pivot point) is a specific price level for traders to make decisions and predict a strong trending movement.
For example: A stock may have resistance at a certain point, which also coincides with the previous week's high. The optimal buying point is when the price breaks completely through that specific area with high volume. This can trigger a significant move, as in the chart below:

The Development of the Pivot Point (Key Pivot Point): A Historical View
The concept of "pivot point" has been a part of trading strategies for over a century.
One of the pioneers who used it was Jesse Livermore - a famous trader in the early 20th century. Livermore's strategy revolved around what he called the "pivotal point".
He observed that stocks often experience significant price movements when they reach a certain critical price level. By identifying these "key points", Livermore was able to time his trades to take advantage of large movements. His success in using this strategy highlighted the potential of such "pivot points" in trading.
Following in Livermore's footsteps, Nicholas Darvas, a trader with a background as a dancer, developed his own unique trading method in the 1950s and 60s. His method, known as the Darvas Box Theory, was also based on the concept of key price levels.
Darvas observed that stock prices often move in a series of "boxes". When a stock breaks out of its current price range, it often signals the beginning of a significant price move. This breakout point is similar to the concept of the pivot point, acting as the optimal buying point.
In recent times, the concept of "pivot point" has been further refined and popularized by traders such as William O'Neil and Mark Minervini.
O'Neil, the founder of Investor's Business Daily, developed the CANSLIM trading system, which uses pivot points as a key component. His approach focuses on buying stocks when they break out of accumulation price ranges, or pivot points, with high volume.
Minervini, a successful trader and author, has also written extensively about the use of pivot points in his trading strategy. He emphasizes the importance of identifying and trading around these key price levels to maximize profits.
The development of the pivot point concept over the years demonstrates its importance as a trading tool. By understanding the historical context and different approaches to using pivot points, traders can better utilize this powerful concept in their own trading strategies.
Determining Pivot Points
The process of identifying pivot points is a combination of art and science, requiring traders to have a keen eye, a solid understanding of market trends, and meticulous chart analysis.
Pivot points are often found within sideways structures in a price base. These price base structures are crucial as they often precede strong trend movements.
An important characteristic to observe in these price base structures is the narrowing of price. This refers to the decrease in price volatility, often illustrated by tighter price ranges from left to right on the chart. Tightening of these price ranges is a sign that Supply and Demand are reaching equilibrium and a breakout may be imminent.
Another important factor to consider is volume. As price ranges tighten, volume typically decreases significantly. This decrease in volume is a crucial signal as it indicates diminishing selling pressure. When volume decreases as prices truly narrow, it suggests that there are no longer sellers to push prices down. This lack of selling pressure can create a favorable environment for a breakout.
However, it's important to note that identifying pivot points is not a one-size-fits-all process. Different stocks and market conditions may exhibit different patterns and trends. Therefore, traders need to be adaptive and consider various factors when identifying pivot points.
Trading Guide with Pivot Points
Trading with pivot points can be an effective strategy when executed accurately.
Here are some extended guidelines to help you achieve that:
Look for Volatility Contraction Patterns (VCP) within a price base VCPs are important signals indicating that a stock may be gearing up for a significant move.
These patterns occur when a stock's price range narrows over time, indicating a decrease in volatility. This narrowing often occurs within a price base, which is a period of accumulation before price volatility.
Detecting VCPs can help you identify potential pivot points and anticipate breakouts.
Identify pivot points directly within the price base
Pivot points within the price base (pocket pivot) are unique volume signals that can indicate the beginning of a significant move. They occur when the stock's volume is higher than any volume on down days in the past 10 days, even if the stock price does not exceed the previous day's high.
Pocket pivots within a price base may suggest accumulation by institutional investors, making them a valuable indicator of potential pivot points.
Confluence across time frames Confluence across time frames occurs when pivot points on different time frames—such as daily, weekly, and monthly charts—converge at the same price level.
This confluence can create a strong combination of support or resistance, making pivot points more significant. When multiple time frames converge at a single price level, it can lead to significant price movements, offering greater profit potential.
Monitor decreasing volume with price tightening action right before the pivot point
As the potential pivot point approaches, keep an eye on decreasing volume accompanied by price tightening action. This combination may indicate that selling pressure is diminishing, laying the groundwork for a breakout possibility.
If the stock price is consolidating and trading volume is low, it suggests that sellers have exhausted themselves and the stock may be poised for higher gains.
When the price breaks out, look for a surge in volume
When a stock breaks out from a pivot point, it's essential to see a surge in volume. This volume surge can confirm the breakout and indicate strong buying pressure.
A breakout with significant volume can be a powerful signal that the stock has the momentum to continue moving upwards.
Conclusion
Pivot points are a powerful tool for traders, representing the price level where Demand overtakes Supply. By analyzing charts and market trends, traders can identify these points and leverage them for timing entry or exit points.
However, like all trading strategies, pivot points are not a "Holy Grail" and traders must always be prepared to manage their risks!

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Bitcoin Halving Comparison Across Cycles:
Halving 2016:
Before the Halving event, BTC dropped by 29.36%, and post-Halving, it dropped another 28%. (Prior to that, BTC had risen by ~335%.)BTC continued sideways for about 100 days before breaking out and experiencing significant upward momentum thereafter.
Halving 2020:
Before the Halving event, BTC corrected by 19.5% from its recent peak.Sideways movement for nearly 3 months following the event.
Therefore, after 2 Halving events, it's difficult to conclude how much BTC will "sell the news" by. The fluctuations during the Halving periods also have a high degree of randomness.
The most certain conclusions drawn from the two Halving events are:
1️⃣ BTC will cool down and move sideways for a period of about 2-3 months.
2️⃣ BTC will continue its strong upward trend and reach its peak within approximately 5xx days thereafter.
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