Today we will be discussing pocket pivots. It’s a very simple concept (mentioned in Trade Like an O’Neil Disciple), very useful concept and after you read this a few times you should start to be able to see pocket pivots very quickly with your own eyes.
What is a pocket pivot? Pocket pivots are a way to identify institutions’ footprints within a base or an uptrend. Institutions buy within consolidation periods and during uptrends. This buying will leave behind a volume signature, and that volume signature is called a pocket pivot.
The institutions are the real movers of the market. We can’t move the market; only the institutions have the money to move the market. So what does this mean? We want to spot when they’re getting into things, and we want to follow along. The pocket pivot helps us identify when they’re getting in.
A few rules on the pocket pivot. It should emerge within, or out of a constructive basing pattern. Institutions are going to be buying while a stock is consolidating or in a solid uptrend. So you definitely want to have a constructive basing pattern when you see this pocket pivot, not when it’s extended.
The day’s volume must be larger than any down volume days over the prior 10 days. This is the definition of a pocket pivot. This is what you’re looking for.
Do not buy pocket pivots if the stock has been in a five-month or longer downtrend. You don’t want to buy anything when it’s in a downtrend. The trend is your friend, remember that and institutions are not going to be buying, and if they are in fact buying a stock in a downtrend and it is going to turn around, you wait for that validation that it’s turning around.
Last but not least, we spoke about this earlier, do not buy pocket pivots that occur after the stock has already extended from its base. Institutions are not buying into an extended move. They are in before the move even happens. You do not want to buy any pocket pivots that you see on a stock that’s extended from its base.
7 Pocket Pivot Rules we follow at TraderLion