Trading Pocket Pivots

7/21/2019 Trading Pocket Pivots

1/18

http://www.chartmill.com

Hunting For Pocket Pivots

using ChartMill Screens


2/18


Hunting for Pocket Pivots

Introduction

Pocket pivots were originally designed by Chris Kacher (Dr K) in

mid 2005 to address some problems by trading the difficult

"trendless" markets of the new millennium. As you might have

experienced yourself, markets started to behave in quite a

different way since 2000. In the 90s almost every breakout

experienced follow through, but last decade, lots of classical

breakouts or famous cup-with-handle patterns failed, leaving

investors with frustration and draw downs.

In this context, Chris Kacher started searching for a more reliable

alternative to get into stocks, before the actual breakout occurs.

This alternative can help you lower the average cost as you begin

building an initial position in the stock.

This document does not want to be exhaustive. We strongly

advise you to read the two excellent books from Chris Kacher and

Gil Morales:

Trade Like an O'Neil Disciple -

How We Made 18,000% in the Stock Market.

Trading in the Cockpit with the ONeil Disciples.
http://chartmill.com/vosi.phphttp://chartmill.com/vosi.phphttp://chartmill.com/vosi.phphttp://chartmill.com/vosi.phphttp://chartmill.com/vosi.phphttp://chartmill.com/vosi.phphttp://chartmill.com/vosi.phphttp://chartmill.com/vosi.phphttp://chartmill.com/vosi.phphttp://chartmill.com/vosi.php


3/18


Enjoy!

Michel Lahaye

Co-founder Chartmill.com


4/18


What are pocket pivots?

A pocket pivot is formed when the stock is coming " ... up and off

or up and through the 10-day or 50-day moving average, or both in

some cases". (Kacher, Morales, Trading in the Cockpit). This

setting can be further fine tuned in our Chartmill screener to your

wishes and even a threshold can be filled in to clearly define the

boundaries of the "up and off" movement around the averages.

Second rule for a pocket pivot is that it must occur " ... with a

particular volume signature" . The particular volume signature

means that the volume of the pocket pivot is higher than the

highest down volume in the last 10 days. This rule is automatically

included when choosing for a pocket pivot scan in the Chartmill

screener.

Of course, not every candidate that appears in the screen is a

good one! Its not just about a burst through a moving

average. Investors should be specifically on the lookout for

strong fundamental companies with good stories and

institutional sponsorship behind them. Combined with a linear,

constructive basing pattern it forms the conditio sine qua non

for a quality pocket pivot buy point.


5/18


Finally, general market context plays a crucial role in finding and

interpreting pocket pivot buy points. As with everything in

investing, hunting for pocket pivots goes together with

experience and situational awareness of the context in which

these pivots are arising. If you are willing to put some effort and

joy in it we would strongly advise you Chris and Gills second

book Trading in the Cockpit. It does a great job explaining real

life application and interpretation of pocket pivots based onthousands of questions they had from members and readers.

So remember:

a) Prices burst through 10 or 50 MA (boom!)

b)

Volume higher than highest down volume

over last ten days (the bigger, the better baby).

c) Fundamentals, institutional sponsorships and stories

MATTER! (yes, sir!)

d) Aah yes (general market) context matters too!


6/18


How to compose a pocket pivot scan?

Traders can hunt for pocket pivots if they go to our website

www.chartmill.comclick on "screener".

You can use the Chartmill screener in two different ways:

1)

Scan for new pocket pivots that are formed today based

on our own database of stocks. However, keep in mind

that the Chartmill database doesn't hold fundamental

data.

2) Use a fundamental list (for example: investors.com or

the free stocktwits50.com) and put your tickers into ourscreener.
http://www.chartmill.com/http://www.chartmill.com/http://www.chartmill.com/


7/18


METHOD 1

If you go for the first option, adding some extra criteria can help

you find better stocks. It's advised to exclude low priced, volatile

and illiquid stocks.

Pocket pivots are originally designed in a growth investing

context with the underlying philosophy that accelerating

institutional sponsorship will drive stock prices higher.

Institutions like decent stocks with strong fundamentals because

they "don't like to be burned alive, trading illiquid crap"

(however, some institutions do like to be burned alive, but thats

another discussion).

It's strongly advised to include:

a) Volume: at least 500.000 shares per day

b)

Price: at least 5 dollars

c)

Markets: US only

d)

ETFs: none

ETFs are mean reverting by nature so they are best avoided.

However - some of the ETF's CAN be traded with pocket pivots

(like SLV, GLD, ...).


8/18


Basic screen settings

Dont forget to choose Pocket Pivot Today in the signallist. In

order to have some visual confirmation, you can choose to add

those two important moving averages and the pocket pivots

view in chart settings below:

You can also save both screener and charts settings by registering

on Chartmill.com and clicking on the savebuttons.


9/18


If you scroll down you have some other handy options:

Let me show you three useful views which I use often to trim

down those candidates easily:

Quickcharts

Quick charts gives you a fast overview of all candidates

that roll out of the screener. I use Quick Charts quite

often to visually spot trading opportunities. Every chart

can be marked and further added to your own watchlists.

StockTwits

With this special view, you can find out what other

investors think of each candidate in the screen. This

option displays the chart of every candidate, next to their

tweets from the famous StockTwits network.

CSV

Chartmill fans asked for a csv- possibility where all

candidates are divided by a comma. Just copy your

favorite candidates and paste them in your software.


10/18


Quick Charts View

StockTwits View

CSV Ticker View


11/18


METHOD 2

Method 1 consists of finding pocket pivots on a technical basis

and checking their fundamentals secondly. Method 2 does the

exact opposite: you start off with a list of strong fundamental

companies with great stories and scan them regularly for pocket

pivot buy points.

Growth investors like to use the original www.investors.comCANSLIM screening tools to compose a watchlist of candidates to

trade from:

Image: Investors.com offers advanced fundamental screening

opportunities for traders using the CANSLIM methodology.

If this service is too costly or advanced for you, you can always

check the free StockTwits 50 list. Together with some nice

insights offered by Ivanhoff you can do more than fine, only

trading this list.
http://www.investors.com/http://www.investors.com/http://www.investors.com/


12/18


Image: StockTwits offers a great free l ist for investors

http:/ /www.stocktwits50.com

At this very moment, we are working on an function for including

this fundamental list automatically into Chartmill. However, this

is still work in progress. In the meantime, investors who want to

implement this list can use the following procedure:

1. Copy the ST50 from stocktwits50.com

2. Paste it into an excel file.

3. Copy the ticker column in excel.

4.

Directly paste the column in the Chartmill Screener.
http://www.stocktwits50.com/http://www.stocktwits50.com/


13/18



14/18


Note:

Its even better to create a new watchlist containing the entire

ST50 and load them directly into the screener using the load

watchlist function.

For more information on how to create watchlists and save

screener settings visit ourdocumentation page.

Remember

a)

Not every pocket pivot point in a stock is a buy.

Always check fundamentals / stories behind the ticker.

b) A good free and sound list is the StockTwits50.

c)

A well known (payed) resource is investors.com

d)

Use the save button in Chartmill for saving both

watchlists as screener settings to speed up the process.
http://chartmill.com/documentation.php?t=How%20to%20use%20Chartmillhttp://chartmill.com/documentation.php?t=How%20to%20use%20Chartmillhttp://chartmill.com/documentation.php?t=How%20to%20use%20Chartmillhttp://chartmill.com/documentation.php?t=How%20to%20use%20Chartmill


15/18


Important Notes on Selling

Kacher and Morales recommend putting some simple, easy-to-

interpret indicators on your chart to follow up your position. As

we already mentioned before: these indicators are the 10, the 50

and the 200 day simple moving average and volume.

The moving averages are used both for determining the pocketpivot buy point and to determine selling points. After

painstakingly observing price action of thousands of leading

stocks, Chris and Gil discovered that most of them adhere to a

certain moving average. This can be the 10, the 50 or sometimes

the 20 MA. Investors can use this observation for using averages

as further guides to place stops and take profits.

This chart shows two pocket pivot points from the 10 MA: begin

January and the end of February (which can be described as a


16/18


continuation buy point). It looks like LNKD mostly adheres to the

10MA which can thus be used as a selling guide. By the way - that

large gap up could also be seen as a buy signal, but this is

described by Dr K and Morales as a buyable gap up. Those

gaps can be extremely powerful signals and can also be traded

successfully according to our VOSI friends. However this would

lead us to far of topic for this publication.

Important note:

Only if price closes below the moving average and is followed

next day by a break of the low, than you can decide to sell (or

diminish the position).


17/18


Important Notes on Market Conditions

Also known as the M in CANSLIM, the general market context is

vitally important to raise your chances of success. Although some

stocks can buck the markets moodly swings, the majority of

stocks still follow the underlying market trend.

It is true that Kacher and Morales take setups in any marketenvironment (on a individual-stock-basis), it's not a bad idea

not to use all of your gun powder in sloppy, volatile, no- go

markets.

We advise traders to position size smaller in times were markets

are not rewarding momentum and to increase size rapidly if morepocket pivots show up and more follow-through is seen.

Market timing can greatly increase your performance while

trading growth strategies because people (and mostly

institutions) keep on blindly pouring in money into stocks.

Market timing can be done by simply following market breadth

indicators like number of stocks above 20 or 50 MA or by closely

monitoring indexes and their underlying values.

A good start is our market breadth page, or the adjusted Buy

Dont Hold model, based on Leslie Masonsons model.
http://chartmill.com/tickerlookup.php?i=truehttp://chartmill.com/tickerlookup.php?i=truehttp://chartmill.com/buydonthold.phphttp://chartmill.com/buydonthold.phphttp://chartmill.com/buydonthold.phphttp://chartmill.com/buydonthold.phphttp://chartmill.com/buydonthold.phphttp://chartmill.com/buydonthold.phphttp://chartmill.com/buydonthold.phphttp://chartmill.com/buydonthold.phphttp://chartmill.com/tickerlookup.php?i=true


18/18


Remember: not a single setup or methodology is perfect. Trading

is more art than science. Think in terms of probabilities than in

terms of certainties, avoid the perfectionism trap.

Whatever you choose, try to develop a procedure. After a while

you get a feel for it, just by observing live market action.

We wish you good luck!

Michel Lahaye

Co-founder

Chartmill.com

Documents

Trading Pocket Pivots