Pivot Point Trading Strategies
What are Pivot Points?
Pivot points are technical indicators used in trading to determine potential reversal points in the market. They are calculated based on the previous day’s high, low, and closing prices, and are used to identify levels of support and resistance.
How to Calculate Pivot Points
To calculate pivot points, you first need to determine the pivot point itself, which is the average of the previous day’s high, low, and closing prices. Then, you can calculate additional support and resistance levels based on the pivot point.
Pivot Point Trading Strategies
There are several strategies that traders use when trading pivot points. Some of the most common ones include:
1. Pivot Point Reversal Strategy
This strategy involves looking for a reversal in the market when the price reaches a pivot point level. Traders will look for signs of a reversal, such as a candlestick pattern or a divergence in an indicator, to enter a trade in the opposite direction.
2. Pivot Point Breakout Strategy
In this strategy, traders look for a breakout above or below a pivot point level. If the price breaks through a pivot point level, it is seen as a signal that the market is likely to continue in that direction. Traders can enter a trade in the direction of the breakout.
3. Pivot Point Bounce Strategy
This strategy involves looking for the price to bounce off a pivot point level. Traders will wait for the price to approach a pivot point level and then look for signs of a bounce, such as a reversal candlestick pattern or a strong support or resistance level.
4. Pivot Point Range Trading Strategy
In this strategy, traders look to trade within the range of the pivot point levels. They will buy at support levels and sell at resistance levels, taking advantage of the price movement within the range.
Conclusion
Pivot point trading can be a valuable tool for traders looking to identify potential reversal points in the market. By using pivot points in conjunction with other technical indicators, traders can develop effective trading strategies to capitalize on market movements. It is important to remember that pivot points are just one tool in a trader’s toolbox and should be used in conjunction with other analysis techniques for successful trading.
