Pivot point can be used as an indicator in trading strategies, it gives strong indications of the stock’s movement and provide clues to its future direction.
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Use moving averages to determine trend. When a stock in a strong up trend pulls back to retest a rising MA, prepare to buy. When a stock in a strong down trend rallies back to retest a declining MA, prepare to sell.
Signal to look for : 3 to 5 bars drop

A down bar is defined by the following criteria:

1. Current bar’s closing price is lower than prior bar’s closing price.
2. Current bar’s closing price is below the current bar’s opening price.
3. Current bar’s open is at or near the high of current bar’s range.
4. Current bar’s close is at or near the low of current bar’s range.

Strong stocks (those in up trends) tend to rebound sharply after 3 to 5 down days. (Strongest rebound after 3 days, moderately strong rebound after 4 to 5 days). Any decline exceeding 5 consecutive down bars is signaling weakness.

Entry:
After 3 to 5 bar drop, buy the very next time the stock trades above a prior bar’s high. (Gaps negates/weaken the pattern)
When a strong stock experiences 3 to 5 bar drops, look to buy above the prior bar’s high. When a weak stock experiences 3 to 5 bar advance, look to sell below prior bar’s low.

Exit (Stop Loss):
Stop loss placed at the lowest point of the 3 to 5 bar drop (for buy trades) and at the highest point of the 3 to 5 bar advance (for sell trades).

Exit (Take profit)
Exit when price drop below the previous pivot point (for buy trades) and when price goes above the previous pivot point (for sell trades)

Notes:

1. Reversal pivot points are almost always accompanied by a heavy increase in volume, a climax of buying which is met with a barrage of selling, vice-versa. Increased volume is an essential element in understanding Pivotal Points, it must be present to confirm the Pivot Point.

2. Continuation Pivot Point:
Occurs during trending moves as natural reaction for a stock in the definite trend.
A consolidation where the stock pauses in its ascent. It is a natural reaction of the stock. To observe which way the stock emerge form this consolidation and not anticipate.

3. False Pivotal Point:
Stocks that traded to new low for the last year, rallied from this new low and dropped down through the new low are likely to continue down from there and establish additional new lows for the move.

4. Final Markup Phase:
Largest part of stock movement occurs in the last 2 weeks or so of the play.

5. One day Reversal:
Price spikes accompanied by abnormally heavy volume of at least fifty percent increase versus the average. This often leads to one day reversal.
One day reversal occurs where the high of the day is higher than the high of the previous day, but the close of the day is below the close of the previous day, and the volume of the current day is higher than the volume of the previous day.

6. Possible danger signals:
Aberrations in the market, for example, spike in stock price, high volume, low volume, that is deviation from norm. ? signal to exit trade.

7. Volume is an alert signal.

8. Line of least resistance for the market, for the industry group and for the stock.