Welcome to The Pivot Point.
So whilst most people just see them as lines on a chart, I don't find many people know how to calculate them or have any real strategy around them.
Here's an intro to Pivot Points;
Summary
Pivot points are used by traders in equity and commodity exchanges. They're calculated based on the high, low, and closing prices of previous trading sessions, and they're used to predict support and resistance levels in the current or upcoming session. These support and resistance levels can be used by traders to determine entry and exit points, both for stop-losses and profit taking.
How to Calculate Pivot Points
There are several different methods for calculating pivot points, the most common of which is the five-point system. This system uses the previous day's high, low, and close, along with two support levels and two resistance levels (totaling five price points), to derive a pivot point. The equations are as follows, with the added R & S 3!
Indicators
You may have already seen but TradingView has a couple of built in indicators for pivots such as this one below; where these levels are automated for you.
For stocks, which trade only during specific hours of the day, use the high, low, and close from the day's standard trading hours.
In 24-hour markets, such as the forex market in which currency is traded, pivot points are often calculated using New York closing time (4 p.m. EST) on a 24-hour cycle. Since the GMT is also often used in forex trading, some traders opt to use 23:59 GMT for the close of a trading session and 00:00 GMT for the opening of the new session.
While it's typical to apply pivot points to the chart using data from the previous day to provide support and resistance levels for the next day, it's also possible to use last week's data and make pivot points for next week. This would serve swing traders and, to a lesser extent, day traders.
This info is all on free sites such as investopedia.com & Babypips.com
Alternative Methods
Another common variation of the five-point system is the inclusion of the opening price in the formula:
And a method by Tom DeMark;
Pivot points can be used in two ways. The first way is to determine the overall market trend. If the pivot point price is broken in an upward movement, then the market is bullish. If the price drops through the pivot point, then it's is bearish.
Some people use pivot points in short term/scalp type strategies - One such method is the rejection;
where as another is taking the break of;
The Bottom Line
Pivot points are a great way to identify areas of support and resistance, but they work best when combined with other kinds of technical analysis
Pivot points are based on a simple calculation, and while they work for some traders, others may not find them useful. There is no assurance the price will stop at, reverse at, or even reach the levels created on the chart. Other times the price will move back and forth through a level.
investopedia.com/trading/using-pivot-points-for-predictions/
Here's another example of how they are used in one of our custom indicators - to help assess the current trend and various levels.
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
Here's an intro to Pivot Points;
Summary
Pivot points are used by traders in equity and commodity exchanges. They're calculated based on the high, low, and closing prices of previous trading sessions, and they're used to predict support and resistance levels in the current or upcoming session. These support and resistance levels can be used by traders to determine entry and exit points, both for stop-losses and profit taking.
How to Calculate Pivot Points
There are several different methods for calculating pivot points, the most common of which is the five-point system. This system uses the previous day's high, low, and close, along with two support levels and two resistance levels (totaling five price points), to derive a pivot point. The equations are as follows, with the added R & S 3!
Indicators
You may have already seen but TradingView has a couple of built in indicators for pivots such as this one below; where these levels are automated for you.
For stocks, which trade only during specific hours of the day, use the high, low, and close from the day's standard trading hours.
In 24-hour markets, such as the forex market in which currency is traded, pivot points are often calculated using New York closing time (4 p.m. EST) on a 24-hour cycle. Since the GMT is also often used in forex trading, some traders opt to use 23:59 GMT for the close of a trading session and 00:00 GMT for the opening of the new session.
While it's typical to apply pivot points to the chart using data from the previous day to provide support and resistance levels for the next day, it's also possible to use last week's data and make pivot points for next week. This would serve swing traders and, to a lesser extent, day traders.
This info is all on free sites such as investopedia.com & Babypips.com
Alternative Methods
Another common variation of the five-point system is the inclusion of the opening price in the formula:
And a method by Tom DeMark;
Pivot points can be used in two ways. The first way is to determine the overall market trend. If the pivot point price is broken in an upward movement, then the market is bullish. If the price drops through the pivot point, then it's is bearish.
Some people use pivot points in short term/scalp type strategies - One such method is the rejection;
where as another is taking the break of;
The Bottom Line
Pivot points are a great way to identify areas of support and resistance, but they work best when combined with other kinds of technical analysis
Pivot points are based on a simple calculation, and while they work for some traders, others may not find them useful. There is no assurance the price will stop at, reverse at, or even reach the levels created on the chart. Other times the price will move back and forth through a level.
investopedia.com/trading/using-pivot-points-for-predictions/
Here's another example of how they are used in one of our custom indicators - to help assess the current trend and various levels.
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.