Friday, August 9, 2013

The Power of Key Pivot Points

What really drives the market in either direction...


MetaStock U - Week 3 - The Naked Traders - The Power of Key Pivot Points - August 9, 2013
By: Chief Trader Bruce E. Dinger

 
New traders are always wondering what really drives the market in either direction…the answer is simply supply and demand – price action – or what many professionals refer to as KPPs – Key Pivot Points.

The KPPs of a stock are very powerful psychological buying and selling areas that enable a trader to focus on their entries, exits, and most importantly the ability to manage their risk. These KPPs of a stock attract buyers and sellers into a trade and when combined with the dominant trend of the stock can produce amazing results for a trader.

Some traders primarily use the KPPs of a stock to manage their trades from A to Z. This includes outlining a clear entry and clean exit. The KPPs also guide a trader to help determine a stock’s ATR (average trading range) and how long it typically takes for a stock to make its move. Learning how to identify KPPs and combining them with “price action” increases your chances for taking your trading career to new levels.

We have found over the years of trading that the best indication of a stock’s movement is price action and how the price reacts with the KPPs. This is because price action will reflect the emotions of the market place. When a trader combines price action with the KPPs of a stock, this can be a very powerful tool for gauging the stock’s next move.

KPPs are also referred to as support and resistance areas. It is one of the most critical things to learn to identify if a trader is looking to trade for a living. It provides a thesis of buying or shorting (trading it to the downside) a stock. Learning how to identify KPPs will enhance a trader’s results because of (3) three major factors involved:
  1. It requires the trader to identify a clear entry point
  2. It requires the trader to identify a clear exit point
  3. It helps the trader identify quality trades with solid reward to risk ratios
So how do you identify the KPPs of a stock?

In most cases, this cannot be done with just a single time frame, but rather done most effectively by using multiple time frame analysis. A trader will find a stock has primary and secondary KPPs, and it is not always easy for the novice trader to distinguish between the primary and secondary KPPs. However, if the trader incorporates both long and short-term charts, it will be easier to recognize the cluster areas of previous buying and selling of a stock.

These clusters will become easier to recognize as the trader spends more time examining various charts and studying multiple time frames. As a trader finds these clusters and compares them to other time frames that the stock huddles around, these should be marked and noted on the chart as either a primary (strong area) or secondary (moderately strong) KPP. The more times that the stock revisits a specific area, the stronger the KPP.

Keep in mind that the market leaves tracks from investors and the market has a long memory. The KPPs will help a trader identify where the main action takes place - where traders view and interpret good buy or sell zones. It is recognizing these areas that will help a trader identify their entry points, exit points, and effectively manage their risk.

There are many moving parts to the market and much for a trader to watch, but we have found as traders and educators of the stock and options market that learning how to effectively identify a stock’s Key Pivot Point is critical to continued success in the market place; regardless of whether your goal is to invest and build long-term wealth or day trade the market to create cash flow.

About Bruce E. Dinger

Chief Trader Bruce E. Dinger, CEO and Chief Trader of TNT Trading the Stock Market, formed the The Naked Traders with the concept of teaching other independent traders how to "strip themselves of all emotion" when they trade or invest in the stock market.

Mr. Dinger has spoken on some of the largest stages around the globe, including CNBC, BusinessWeek, SuccessMagazine, The Women's Financial Conference, Rich Dad's, On-Line Trading Academy, Success Resources, and many others. He has one of the best reputations in the financial markets for helping students achieve their goal of becoming an independent trader or investor. Mr. Dinger can be reached at info@TheNakedTraders.com.
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