What Is the Pivot Points Trading Strategy?

Pivot points are used by traders of stocks and commodities to predict or anticipate support and resistance levels in the current or upcoming session. Calculated based on the high, low, and closing prices of the previous trading session, pivot points are used to predict price support and 澳洲幸运5开奖号码历史查询:resistance levels in the next session.

These support and resistan💦ce levels are used by traders to determine entry and exit points, both for stop-losses and profit-taking.

Generally, it is seen as a bullish sign if a st🍒ock or commodity opens at a price above its previous pivot point. It ♎is a bearish sign if it opens below its previous pivot point.

How to Calculate Pivot Points

There are several methods for calculating 澳洲幸运5开奖号码历史查询:pivot points, the most common of which is the five-point system. This system uses the previous day's high, low, and close, alo💞ng with two support levels and two resistance levels (toꦺtaling five price points), to derive a pivot point. The equations are as follows:

$\text{Pivot Point} = \frac{\left(\text{Previous High} + \text{Previous Low} + \text{Previous Close}\right)}{3}$Pivot Point=3(Previous High+Previous Low+Previous Close)​

$\text{Support 1 (S1)} = \left(\text{Pivot Point}*2\right) - \text{Previous High}$Support 1 (S1)=(Pivot Point∗2)−Previous High

$\text{Support 2 (S2)} = \text{Pivot Point} - \left(\text{Previous High}- \text{Previous Low}\right)$Support 2 (S2)=Pivot Point−(Previous High−Previous Low)

$\text{Resistance 1 (R1)} = \left(\text{Pivot Point}*2\right) - \text{Previous Low}$Resistance 1 (R1)=(Pivot Point∗2)−Previous Low

$\text{Resistance 2 (R2)} = \text{Pivot Point} + \left(\text{Previous High}- \text{Previous Low}\right)$Resistance 2 (R2)=Pivot Point+(Previous High−Previous Low)

For stocks that trade only during specific houඣrs of the day, use the high, low, an♕d close from the day's standard trading hours.

In 24-hour markets, such as the forex market in which currencies are traded, 澳洲幸运5开奖号码历史查询:pivot points are often calculated using New York closing time (4 p.m. EST) on a 24-hour cycle. Other traders opt for G๊reenwich Mean Time, using 23:59 GMT for the close of a trading session and 00:00 GMT for the opening of a new session.

While it's usual 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 澳洲幸运5开奖号码历史查询:swing traders and, to a lesser extent, day traders.

Alternative Methods

Another common variation of the five-point system is the inclusion of the 澳洲幸运5开奖号码历史查询:opening price in the formula:

$\text{Pivot Point} = \frac{\left(\text{Today's opening} + \text{Yesterday's High} + \text{Yesterday's Low} + \text{Yesterday's Close}\right)}{4}$Pivot Point=4(Today’s opening+Yesterday’s High+Yesterday’s Low+Yesterday’s Close)​

Here, the opening price is added to the equation. The supports and resistances can then be calcu꧑lated in the same manner as the five-point system, except with the use of the modified pivot point.

Yet another pivot-point system was developed by , founder 🦂and CEO of DeMARK Analytics.

This system uses the following rules:

As you can see, m🧸any pivot-point systems are available. 

While knowing how to calculate pivot points is important for understanding what you're using, most charting platforms calculate pivot points for us. Simply add the pivot-point indicators to your chart and choose the settings you prefer.

Interpreting and Using Pivot Points

The pivot point itself is the primary support and resistance when calculating it. This means that the largest pr✱ice movement is expected to occur at this♍ price.

The other support and resistance levels areꦇ less influential, but may still generate significant price movements.

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 drop𓆏s through the pivot point, it is bearish.

The second method is to use pivot point price levels to enter and exit the markets. For example, a trader might put in a 澳洲幸运5开奖号码历史查询:limit order to buy 100 shares if thꦇe price breaks a resistance level. Alternatively, a trader might set a stop loss at or near a support level.

While at times iไt appears that pivot levels are very good at predicting price movement, at other times they appear to have no impact at all. No single t🀅echnical tool can be relied on exclusively. 

The success of a pivot point system lies squarely on the shoulders of the trader and depends on th✱eir ability to effectively use it in conjunction with other forms of technical analysis.

These other technical indicators can be anything from a MACD to 澳洲幸运5开奖号码历史查询:candlestick patterns, or using a 澳洲幸运5开奖号码历史查询:moving average to help establish the trend direction.

The greater the number of posiꦫtive indications for a trade, the greater the chances for success.

The Bottom Line

Pivot points are a great way to 澳洲幸运5开奖号码历史查询:identify areas of sup🍬port and resistan𓂃ce, but they work best when combined with other types of technical analysis. Pivot points are based on a simple calculation, 🔯and while they work for some traders—like traders of binary options—other traders 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.

As with all indicators, it sh🔥ould only be used as part of a complete trading plan.