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Pivot Points

Pivot Point – A point of Crossing

Pivot points to identify important support and resistance levels. A pivot point and its support/resistance levels are areas at which the direction of price movement can possibly change. Pivot points are especially useful to short-term traders who are looking to take advantage of small price movements. Pivot points can be used by both range-bound traders and breakout traders. Range-bound traders use pivot points to identify reversal points. Breakout traders use pivot points to recognize key levels that need to be broken for a move to be classified as a real deal breakout.

Calculation of Pivot Points

Pivot point and associated support and resistance levels are calculated by using the last trading session’s open, high, low, and close.The calculation for a pivot point is shown below:
Pivot point (PP) = (High + Low + Close) / 3.       Support and resistance levels are then calculated off the pivot point like so:

First level support and resistance:

First support (S1) = (2*PP) – High

First resistance (R1) = (2*PP) – Low

Second level of support and resistance:

Second support (S2) = PP – (High – Low)
Second resistance (R2) = PP + (High - Low)

The pivot point should be the first place you look at to enter a trade, since it is the primary support/resistance level. The biggest price movements usually occur at the price of the pivot point. Only when price reaches the pivot point will you be able to determine whether to go long or short, and set your profit targets and stops. Generally, if prices are above the pivot it’s considered bullish, and if they are below it’s considered bearish. Range –bound Traders can be performed using Pivots.In theory, it sounds pretty simple. In the real world, pivot points don’t work all the time. Price tends to hesitate around pivot lines and at times it’s just hard to tell what it will do next.

Conclusion -Why Pivot Points

  •  Pivot points are a technique used by professional traders and market makers to determine entry and exit points for the trading day based on the    previous day’s trading activity.
  • It’s best to use this technique after determining the direction of the trend.
  •  Range-bound traders will enter a buy order near identified levels of support and a sell order when the pair nears resistance.
  •  Pivot points also allow breakout traders to identify key levels that need to be broken for a move to qualify as a bona fide breakout
  • You’ll become more in sync to market movements and make better trading decisions. Learn to use pivot points along with other technical analysis tools such candlestick patterns, MACD crossover, moving average crossovers, Stochastics overbought/oversold levels. The greater the confirmation, the greater your probability of success! 

     

     

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