Pivot Points Trading Strategy

Pivot Points Trading

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. 

5 Reasons Why Day Traders Prefer Pivot Points 

Remarkable indicator for Day Trading

The pivot points formula gathers data of past trading days and uses it for the current trading day. By this arrangement, the levels which you see are applicable only for the current trading day. Because of this, the pivot points are the unique indicator for day trading.

Short Time Frames

When the pivot point data is created on a particular trading day, the indicator should be applicable for the shorter time frames. Must note that the daily and 30 minutes charts will not be helpful because it only consists of one or two candles. The efficient timeframes for the pivot point tool are 1- minute, 2 minutes, 5 minutes, and 15 minutes. Therefore it is mainly used by day traders. 

Excellent Accuracy level

The pivot point trading tool is one of the indicators which show accurate results. This is the big reason why day traders, professionals and others like to use it. This helps you to trade according to the trends of the market with confidence.

Quality collection of Data

Pivot point charts offer a high-level quality collection of data. As we mentioned above, The indicator shows seven different trading levels, which is sufficient for traders to make a day trade throughout the trading session. 

User Friendly

A pivot point indicator is a user-friendly tool that is offered by most forex brokers. Some top brokerage firms that offer forex trading are PrimeFin, Investlite, and ROinvesting.With the help of the PP indicator, you can calculate all levels together. You may not be required to intend the particular levels. 

Differentiation between Pivot Points & High Float Stocks.

These days many financial experts are discussing momo stocks, low float that will generate huge returns. If you are friendly with volatility and high risk and consist of immense experience, there must be a place for trading those stocks. Although, while we talk about pivot points, huge float stocks are still in trend. The good thing about higher floating stocks are these instruments depend on and trade in or around the pivot point level in a forecastable trend. 

Conclusion

Pivot points trading strategy is an essential tool that is used for researching effective support and resistance levels. It is famous among professional day traders due to its remarkable accuracy level. Through this article, you can learn how pivot points trading strategies work efficiently. Here we explain various types of Pivot Points trading strategies that help you in applying previous data in your current trade. Read the overall article for further, more detailed information. 

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