Pivot Points Trading Strategy
If you belong to the financial world, you must hear the term Pivot Points Trading Strategy
and How they work? Pivot Points Trading technique is very famous among day traders.
It is an advanced technique that supports your trading decisions on the basis of previous
data. We discuss various pivot points trading strategies. So that you can understand
which pivot points are best for intraday standard or Fibonacci.
Pivot Points Trading strategies are mainly used for price forecasting, which supports
your current trading decision. It is a point where the market sentiment changes from
being bullish to bearish. The opposite of this is also true. If the price movement crosses
the first level of support and resistance, the market trend will enter the second level.
However, a pivot point is an essential tool that professionals use to determine where the
price will shift. They are also used to setting stop-loss and take-profit.
What are Pivot Points?
The pivot point is a technical analysis indicator that is used for price prediction based on
the previous period’s highs, close, and low prices for a certain period of time. Other
small calculations are used for determining the “outside” points.
It helps you to determine the entry and exit points of the market. That is why traders use
pivot points as an indicator which is used to manage support and resistance levels.
There are five resistance and support price levels available around the pivot.
Different Types of Pivot Points
There are four main types of pivot points, as explained below.
The Standard Pivot Points
Woodie Pivot Points
Camarilla Pivot Points
Fibonacci Pivot Points
Demark Pivot Points
As you start, you will see that there is often an eternal discussion between trades about
the close, high, open and low prices due to the forex market being generally active 24
hr on all weekdays. Collect detailed information about all four pivot points from this
article.
Standard Pivot Points
The standard pivot points are intended in an easy way. The first thing you need to do is
calculate the pivot point. You can determine this by adding the high, low, and close.
Then divide the total by three.
The initial resistance (R1) is intended by multiplying 2 by the PP and subtracting the
low (2*PP) – Low. The initial support (S1) is calculated through this formula (2*PP) –
high.
The second support (S2) & second resistance (R2) are intended by:
R2 = PP + (high – low)
S2 = PP – (high – Low)
The third resistance
& third support are
intended by:
R3 = Hgh + 2(PP- low)
S3 = Low – 2(High – PP)
Woodie Pivot Points
The woodie pivot points are totally different from the classical and the standard pivot
points. Some traders select these points because they give more importance to the
previous period’s closing price. The woodie pilot point is calculated with a different
formula mentioned below.
Firstly, calculate the pivot point (PP) by using the formula: (H+L+2C) / 4.
R1 = (2*PP) – Low
S1 = (2*PP) –
High
R2 = PP +High – Low
S2 = PP – High + Low
Fibonacci Pivot
Point
The principle of Fibonacci Retracement is fundamental in the market. It is essential due
to its remarkable performance for more than a century. It is also used for determining
pivot points. Here are some formulas.
First, you need to calculate the pivot point by the given formula: (H + L + C) / 3
The R1 is intended by PP + ((High – Low) * 0.382).
The S1 is intended by PP – ((High – Low) * 0.382).
The R2 is determined by PP + ((High – Low)* 0.618)
The S2 is determined by PP – ((High – Low) x 0.618)
The R3 is intended by PP + (( High – Low )* 1.000).
The S3 is intended by PP – ((High – Low) x 1.000).
Camarilla Pivot Points
Camarilla Pivot Points is not a popular pivot point in the market because it developed the
principle of Fibonacci lines in the calculation. The tool’s calculation is comparatively
longer than others. Check here the formula for calculating Camarilla Pivot Points.
Firstly you need to add the high, low, and closing prices. After this, divide the total by 3.
For determining the initial resistance
R1 = Closing + ((High – Low)* 1.0833)
For calculating initial support, you need to do the reverse
Closing – ((High – Low)* 1.0833)
The exact formulas are applied for calculating further resistance and support.
Demark Pivot Points
Demark Pivot Point consists of a unique relationship between the opening and the
closing price. Tom Demark developed this formula of calculating pivot points.
The demark pivot point utilizes the number Y for determining the upper resistance level
and the lower level line. It also highlighted current price action. Here is the formula for
calculating it with different conditions.
1st condition : Close > Open, In this case X = (2*High) + Low + Close
2nd condition: Close < Open, In this case X = High + (2*Low) + Close
3rd condition: Close = Open, In this case X = High + Low + (2 * Close)
Pivot Point = X/4
R1 = X/2 – low
S1 = X/2 – High
How do
Pivot
Points
work?
Pivot point offers standard support and resistance functions mentioned on the price
chart. While price action comes nearer a pivot level, it can be:
Extended (Breakout)
Supported/Resisted
All things should be checked in case the price action comes nearer to a pivot point on
the price chart. You need to manage the condition as a general trading situation.
However, if the costs begin fluctuating while reaching this level and coincidently turns
towards the alternative direction. Then you need to trade in the new direction where it
turns. Although, if a pivot point dismisses the price action, then we can continue the
action in the breakout direction. This is known as pivot point breakout.
How can we perform Day trading through Pivot
Points?
In the previous paragraph, we studied the basic concept of pivot points, and now we
explain two pivot points trading strategies for day trading pivot level breakouts and
pivot point bounce.
Pivot Point Breakout Trading
To get entry in a pivot point breakout trade, you need to open a position by a stop-limit
order while the price breaks via a pivot point level. These breakouts most take place in
the morning hours.
In case the breakout is beamish, then you will perform a short trade. Alternatively,
suppose the breakout is bullish, then the performing trade will be a long trade. Do not
forget to apply a stop loss while using pivot point breakout trading strategies. Must hold
your pivot point breakout trade until the price level touches the next pivot level.
Pivot Point Bounce Trading
It is also another type of pivot points trading strategy. In this pivot point strategy, in place
of buying breakout, you can highlight the example while the cost action bounces from its
levels. Suppose the stocks market is to examine the pivot line from upwards and also
bounce upside; in this case, you can purchase stocks.
Alternatively, Suppose the price is to examine a pivot line from the downwards and
bounces downside; in this case, you need to sell the stocks. Must set your stop-loss
order above the pivot line in this trade if you are short. And keep the stop loss order
below if you keep it for long. It is obvious that pivot point bounce trades will take place
until the price touches the next level.
How to use Pivot Points Trading Strategies in the
market?
Till here we clear your all doughnuts about a pivot point, now it’s time to learn how to
apply pivot point trading strategy in the market? But before that, you need to keep two
things in your mind at the time of using pivot points trading strategies are
1. First thing, you can often apply a pivot points trading strategy while the market is
fluctuating. This referred to the never apply pivot point strategy when the market
is consolidating and ranging.
2. The second thing, make sure that you set your aims carefully. Through this, you
can keep a little bit downwards the resistance level, and a little bit forwards the
support levels.
After going through these points, you need to select the correct pivot point suitable for
your trading style. Check here how you can use this at the time of trading. You only
require a chart that you want to analyze and choose any one pivot point which you wish
to apply, and three back pivots are sufficient in most cases. Only in a few instances,
traders take more than three back pivots.
Now it’s time to select the number of levels of the points that you need to use. If the cost
is located at the pivot point level, you may not require support and resistance 3 and
more than that. Now, you can change the colour of the pivot points for spotting them
quickly.
For instance, take the EUR/USD forex pair; in the chart, add a standard pivot point along
with any three back pivots. After that, add R1 S1 (first resistance & support ) and R2 S2
(second resistance & support ) levels. In this chart, you can easily see that the forex pair
dropped and floated near to the first level of resistance and then rose again. During
writing, the price is present at the pivot point level. However, if the price goes above this
level, the next will see the resistance of the previous level.
