The strategy works the same on individual stocks. On Dec. 8, Caterpillar had the following data: High of 95.53; low of 92.60; close of 92.92. This produces the following pivot levels:
P = 93.7
R1 = 94.8 S1 = 91.8
R2 = 96.6 S2 = 90.8
R3 = 97.7 S3 = 88.9
We can see Caterpillar’s price action on Dec. 9 in “Swing higher” (below). It opened at $93.63 and traded in a narrow range. Following our pivot strategy, we go long above the pivot of $93.80, using the initial day’s low of $93.44 as our stop loss.
The first target for the trade is R1, or $94.80. At this level, we either could book profit or move our stop loss higher to, say, the entry price. The second target for the trade is R2, or $96.60. Caterpillar’s high on the day was $96.29, or 31¢ short. Because this is a day-trading strategy, we square our account at the market’s close.
Not only can pivot points be used to find profitable breakout trades, but they can be used to trigger successful long and short trades in the same day.