WHAT IS 'Fulcrum Point'

Fulcrum point refers to a turning point for a security or the economy in general that marks a major change in direction. A fulcrum point can be very profitable for investors who are able to identify that a sharp price move is about to take place.

BREAKING DOWN 'Fulcrum Point'

Fulcrum point is found in technical analysis when a chart’s representation signifies a change in direction for a security or index. Such movements can be difficult to identify and predict, but the potential for very high returns keeps many investors looking for them. It is not always clear whether a swift change in direction is real or just appears to be, and in fact fulcrum points can only be positively identified after the fact because there is always the possibility of a false signal.

For example, if one stock has been on a downward trend for a while and begins to climb again, the fulcrum point is the lowest point in the chart. Similarly, if a stock has been on an upward trend and begins to decline, the fulcrum point is considered the highest point on the chart.

Traders and technical analysts are always looking for a way to identify fulcrum points in advance, but because fulcrum points are so rare, few investors succeed in both predicting when a movement occurs and in timing the movement correctly. Often what may seem initially to be a major sharp reversal may instead turn out to be just a minor movement before the major trend resumes.

The plunging of U.S. equity markets in 2008, and then a sharp recovery in 2009, is another example of a fulcrum point.

Differences Between Fulcrum and Pivot Points

While a fulcrum point signifies a distinct change in the direction of a security or the overall market, a pivot point is a technical analysis indicator used to determine the overall trend of the market over different time frames.

A pivot point is established by finding the average high, low and closing prices from the previous trading day. Each level is considered a pivot point, and pivot point analysis is often used in conjunction with calculating support and resistance levels. Pivot points are also commonly used indicators for trading futures, commodities and stocks. Some traders add additional pivots points to expand the range to include up to four additional support and resistance pivot points. Unlike moving averages or oscillators, pivot points are static and remain at the same prices throughout the day.

 

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