What is a Pocket Pivot?
Pocket Pivot Definition, Guide, and Rules.
What are Pocket Pivots?
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 big institutions have the money to move the market.
So what does this mean?
We want to spot when they’re getting into positions and accumulating, and we want to follow along.
The pocket pivot helps us identify when they’re getting in. Big institutions can sometimes take weeks to months to accumulate massive positions, so it is hard to hide their tracks completely.
Pocket Pivots can be identified on individual stocks as well as general industry ETFs.
What is the definition of a Pocket Pivot?
The definition of a Pocket Pivot is the current up day’s volume must be larger than any of the down volume days in the prior 10 days.
The Pocket Pivot was first popularized by William J. O’Neil and is a key component of his CANSLIM investing method.
While a Pocket Pivot is a bullish signal, it is not necessarily an indication to buy the stock. Instead, it is a sign that the stock may be ready to make a move higher and that investors should keep an eye on it.
The Pocket Pivot signals new institutions entering the stock and a change in character. It is one of the strongest signals in technical analysis and should not be ignored.
Pocket Pivot Rules
- As with base breakouts, proper pocket pivots should emerge within or out of constructive basing patterns.
- The stock’s fundamentals should be strong. Excellent earnings, sales, ROE, strong leader preferably in a leading group.
- Do not use Pocket Pivots to bottom fish stocks. Stocks should be basing or in uptrends and be CANSLIM quality.
- If the Pocket Pivot occurs in an uptrend AFTER the stock has broken out, it should act constructively around its 8ema.
- Do not buy Pocket Pivots if the overall chart formation is in a multi-month downtrend. For example: Trading below its 65ema/200dma.
Try our free position size calculator to help determine how many shares to buy.
Putting It All Together
In summary, Pocket Pivots are a key tool for spotting institutional buying, either during a stock's base formation or in an uptrend. They help traders identify the real market influencers. By concentrating on specific stocks and industry-wide ETFs, Pocket Pivots offer insights into possible market trends. Following Pocket Pivot rules, traders can focus on stocks with solid fundamentals and positive base patterns. This approach helps avoid low-performing stocks and targets high-quality ones with better growth prospects.
Pocket Pivots are a positive sign, but they don't always mean you should buy right away. Instead, use them as a signal to watch the stock closely for signs of increasing momentum. Adding Pocket Pivots to your strategy, along with considering the broader market, can help you make more successful trades.