Do You Know Your Pivot Points?
November 16, 2017 3:43 pmVideo
Latest News
- Video market update for April 23, 2024 April 23, 2024
- Trading Signals for EUR/USD for April 23-25, 2024: buy above 1.0681 (21 SMA – 3/8 Murray) April 23, 2024
- Analysis for the EUR/USD pair on April 23rd. Euro currency prepares for another decline April 23, 2024
- Analysis for the GBP/USD pair on April 23rd. Sellers failed to take the mark of 1.2313 on the first attempt April 23, 2024
- Technical Analysis – AUDUSD gears up after disappointing US PMIs April 23, 2024
- Technical Analysis – Meta stock falls below 50-SMA ahead of earnings April 23, 2024
- USD/JPY: Simple trading tips for novice traders on April 23rd (US session) April 23, 2024
- GBP/USD: Simple trading tips for novice traders on April 23rd (US session) April 23, 2024
- Technical Analysis – USDJPY fights with new 34-year high April 23, 2024
- EUR/USD: Simple trading tips for novice traders on April 23rd (US session) April 23, 2024
- Alphabet Q1 Earnings: Strong ad business but AI initiatives lag – Stock Markets April 23, 2024
- GBP/USD: trading plan for the US session on April 23rd (analysis of morning deals). The pound continues to decline April 23, 2024
- EUR/USD: trading plan for the US session on April 23rd (analysis of morning deals). The euro has shown rapid growth April 23, 2024
- EUR/USD. April 23rd. Bulls and bears are in balance April 23, 2024
- GBP/USD. April 23rd. The bears continue to attack April 23, 2024
- Gold edges lower as Middle East tensions ease April 23, 2024
- Slightly lower volatility across the board ahead of key US data – Volatility Watch April 23, 2024
- Technical Analysis – UK 100 index hits new all-time highs but rally may be cooling April 23, 2024
- XM Teams up with ‘Charity Right’ for Change April 23, 2024
- Technical Analysis – US 500 index rebounds off 2-month low below 5,000 April 23, 2024
Trading can be really confusing right? I mean – S&R, Heinki-Ashi candlesticks, shadows, hammers and retracements – I mean what do those even mean?! Well, I know because I write about them, but not everyone writes about trading on a daily basis. Ok let’s at least set a starting point….see what I did there? Pivot points are key price regions which an instrument’s price might reach resistance or support. The way pivot points are calculated are with standard metrics meaning they can stand as unbiased gauges of support and resistance. This is why many market veterans actually use pivot points to calculate S&R.
Pivot points are calculated with specific formulas; based on the instrument’s lasts day’s low, high and the last closing price. In general, three resistance, three support and one central pivot are plotted on a H1 (or one hour) chart. To calculated them:
You can find the values for closing, low and high by putting the chart in D1 (or daily mode), using the previous day’s candlestick.
You can also use various tools which automate pivot point calculation and plots the indicators on your chart.
What do Pivot Points Do?
As I mentioned in the intro pivot points are great tools to map the area between support and resistance. It not as cut and dry as that though because the lines R1, R2 and R3 can also work as support, depending of the vector of the price action. Inversely, S1, S2 and S3 can be stand-ins for resistance depending on the conditions, so keep that in mind as we go forth with pivot points.
Here are a few ways pivot points can be used:
a) Trading a Breakout
If the price of an instrument doesn’t break through a pivot point it can be considered either support or resistance. Sometimes though an instruments price fuelled by fundamental data can break through these pivots.
This gives the trader using pivots points to delineate support and resistance the opportunity to trade the breakout – although in most cases the price will test these levels it broke through again.
Although many traders use breakouts in their strategy, it can definitely be risky.
b) Trading Within a Range
You can also use the pivot points to designate an area, that has not experienced a breakout. Traders that use this strategy generally seek to buy towards the lower area of the region (thus at a lower price) and sell in the higher areas of the region (or a higher price). This is less risky than breakout, as a breakout can be momentary and in many cases may return to retest both support and resistance, whereas trading within a region, gives the trader more leeway. None-the-less there are multiple variables when using this, that can affect the outcome of a trade.
c) Gauging Market Sentiment
Pivot points can also be used to measure market sentiment, by watching what the price action does at the opening of markets in correlation to the central pivot point (which as you remember is an average of the Low, High and Closing of the previous day).
Conclusion
EA’s, chart indicators and tools such as pivot points are exactly that, tool. Every tool needs a competent user for it to work as it was intended. Keep in mind that trading has many variables which include both technical, fundamental and of course human factors.
The post Do You Know Your Pivot Points? appeared first on Forex.Info.
Related Posts: