How to use Pivot Points for Trading

Pivot Points

Pivot points meaning

The pivot point is self-explanatory, which means the axis or the central point.  So, it is essential in trading.  It is significant to know how to use them while investing in the volatile market. You should know how to calculate pivot points, support and resistance levels. Figuring out the pivot meaning can help you elevate your wealth and decision making while indulging to buy any asset.

Meaning of pivot points

These are basically technical indicators that use earlier period’s lows, highs and close price for a certain period to figure out or define the future support.  In other words, it is an intraday technical indicator that is utilised to identify trends and movements of the share market, commodity and forex. It is also used to seek the reversal and create a strategy around.

Precisely, a pivot point is the average of a total number of highs and lows during intraday trading. By calculating it, traders can determine when to enter the market and exit.

Interestingly, trading above the pivot point indicates the bullish sentiment of the market, on the other hand, trading it below the pivot point indicator showcases the bearish trend of the market.

However, it is also inclusive of other resistance levels and supports. Their projection is based on the calculation of pivot points. All levels explain to traders whether the price has resistance or support. More importantly, if the price starts moving through these directions, it will disclose the trending price to the investor.

Why are pivot points calculated?

Pivot points are calculated to know how different levels change one sentiment into the other. It has a huge impact on the market where people may have to change their strategies to accustom to the changes in the sentiments. When the market alters from bullish to bearish and vice-versa, there has to be a change in planning as well to make money.

By calculating the pivot points, a trade can find out the levels of profit-taking, stops and entry.

Pivot points history

Floor traders used them on stock exchanges earlier. For figuring out the pivot point of the current day, they used the close price, highs and lows of the day before. Notably, pivots point have predictive qualities that fair in the favour of traders.

The calculations aided them to notice essential levels for the entire day. So, it worked as a leading indicator.  The most important pivot is the crucial price level of the day.

You can roll out the balance between bearish and bullish markets.  Today, pivot points are used by retail traders extensively and their acceptance is growing in the market quickly.

Reasons why traders are using pivot points

Traders using pivot points have several reasons backing it. From perfecting the technical analysis to strengthen forex trading or stock trading and take price action into consideration.

Small time frames

There is not much data to accumulate as the information is available or used for a single day, traders like to trade here using short time frames. The indicator is applied over small time frames. Notably, daily and the thirty-minute chart won’t work here. It will probably showcase one or two candles.

The top time frames for pivot points would be anywhere between 1 minute to 15 minutes. So, it is the choice of the user which one to select and use in the market.

Great set of data

On Charts, pivot points offer an amazing set of data that enhances your trading skills and let you gain good pivot levels. With such support levels, one can remain reassured and invest more in the market. You can find as many as seven separate indicating levels that can deduce benefits for a trader while investing in any asset. It is enough for a  market player to make good and quick pennies in a day’s trade.

Unique way for day trading

In the pivot points trading, a trader fetches data from the previous day’s market performance and applies that to the current day. It includes high, low and close prices. Thus, you can only apply those levels to the present day. Also, the support level is applicable for the same day. Likewise,  monthly pivot points work. Thus, a pivot point becomes an ultimate indicator due to the average of the high, low and closing.

Tremendous high accuracy

If you want the accuracy of the price movement using the previous trading, then the pivot point calculation can help you do that.  The indicator is being used by retail traders, professional traders and day traders with the same intensity.

Simple to use

The pivot point is also known as a technical analysis indicator. Most importantly, almost all types of trading platforms provide this type of indicator for making trading easy for all traders. Thus, you don’t even need to calculate any separate levels. Brokers like TradedWell, Global TradeATF offer this to their clients.

What are Fibonacci pivot points?

It is among the most popular pivot points for day traders that can promote their trading skills. Fibonacci retracements, projections and extensions, are significantly and extensively used in stocks, forex and other markets for improving the return of investment criteria. These are positioned after a mathematical sequence.

How to calculate Fibonacci pivot points?

Calculation for the base pivot point

P= (H+L+C)/3

P- Pivot Point,  H- High  L- low,  C- Close

For support level S

For resistance level R

Woodie’s Pivot Point

It weighs more on the closing price of the day trading. Meanwhile, the process of its trading is equivalent to standard pivots formula

Camarilla’s Pivot Point

It was invented by Nick Scott in the 1980’s. It has similarities with the Woodie’s pivot point. There are four resistance levels and four support levels separately in Camarilla’s Pivot Point. However, with Woodie’s there are only two pieces.

Demark Pivot Points

It shares a distinct camaraderie between closing and opening prices. It was invented by Tom Demark who was a noted trader.

He used the number X to calculate the trading’s upper resistance level and lower level line. Moreover, it puts emphasis on recent price action.

When close< open, then X = Close + (Low x 2) + High

When close> open X = (High x 2) + Close+low

When open= close, X = High + Low + (2 x Close)

Day trading using pivot points

If you are someone who knows how to apply trading strategies, then pivot points belong to you.

Bounce trading in Pivot point

This type of trading is different in approach. Here, buying breakouts is not recommended. Instead, the price actions bounces from the levels of pivots. If there is scenario that a stock tests a pivot line and bounces or surges upwards from the upper side, then that’s the time to purchase or invest in that stock.

On the other hand, if the testing of the price is happening  from the lower side, bounces downwards, then it is the indicator to short or selling the stock.

Moreover, the stop loss order should be applied beyond the pivot level if you short and below when you long. So, that is crucial in deciding your loss and profits in the stock market.

However, pivot points bounce trade should be held captive until it reaches the next level for milking better benefits.

Breakout trading on pivot point

One should open a position through stop-limit order while swiftly entering the pivot point breakout trade. It helps in smooth trading. It happens when the price breakthrough or surpasses a level of the pivot point. Such breakouts usually happen in the morning.

It is essential that you apply a stop loss before indulging in it.

If you witness that the breakout is bullish, then it is mindful to go long and conversely, go short.

The best place for applying the breakout would be around the top/bottom. You can draw maximum gains through it. You can secure your prices against unforeseen or negative moves that may harm your prospects.

You should hold the pivot point breakout until the action of the price reaches the next level.

Limitations of pivot points

There are simple calculations in pivot points. Thus, there are limitations. So, it may be useful for several traders, others may not find them good enough. Also, it depends type of trading people are looking to do. Moreover, it should serve the scheme of things. It does not come with the guarantee that the price would stop at that place.  Furthermore, it is not necessary whether the price would reach the level created on the chart.

High float stocks and pivot points

These days, people are talking about momo stocks, low float and high float for trading and garnering bigger returns. If you are ready, experienced and accustomed to all perils of the market, then pivot points are for you. However, high float stocks are going strong.

High float stocks sticks around their neck near pivot points. So, as a trader, you are always making benefits. There’s a certain predictability or you can speculate the price rise. So, it becomes extremely crucial in trading.

If you are a newbie trader and want to get the best view of the financial market, then indulging in large cap stocks is better. Once you understand how the stock market behaves, it is always better to take some risk. But spending some quality time is crucial.

Build consistency using pivot points

Do you know it is extremely crucial to draw consistency when trading securities because that’s how you gain experience and know the behaviour of the market? Also, when you use a tool for planning, that works well based on your feedback and they come when you’ve spent a considerable time in trading.

There is a kind of obsession when you trade with securities. Entering and exiting the market becomes a constant part of trading. You need to monitor stock markets and check how did your stocks performed for the day before taking a call on longing or shorting.

There’s a reason that some people find it difficult to succeed because they are unable to find out whether to continue trading and hold a share or short it. This happens to even the most experienced market players.

Also, there are no short cuts if you are looking for one. They may work in one or two instants, but for the longer run, you need to focus on the market using pivot points. One should grasp the market sentiment

Pivot points sho you the light when there is no where to go and trading looks abysmal. it can help you in three ways.

a) You get to know when to place your bids successfully.

b) How and when to place the stop so that you do not have to face any losses.

c) Learn how and when to exit trades and reasoning behind it.

You can ignore fatalities of the market and these three principles of pivot points can be useful for you. As a trader, you can earn even millions.

Placing stops with pivot points

When you are aware of closing prices, the pivot points teach you how to place clear stops on a chart. Remember one thing, do not put up your stops randomly on any line, it won’t serve the purpose that you want for yourself as a trader.

Prior days pivot points

Several charts software will give you the pathway whether you would like to see pivot points of the current days or from the prior days.  It is simple to focus on the current days’ levels. However, the prior days bring resistance on your chart or ay trigger one.

Conclusion:

Pivot points are pivotal on so many levels. An astute trader will always pump it. The are pivot point levels that hinge upon pivot point trading and let you experiment in different financial markets, including forex, commodities and stocks. These are used during a trading day or intraday trading.  Also, you know when price breaks and makes for the constructive trading on different stock exchanges.

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