PIVOT POINT TRADING STRATEGY 2023

PIVOT POINT TRADING STRATEGY

Introduction:    Pivot point trading strategy are an important tool in technical analysis that traders use to determine potential support and resistance levels in the market. They are widely used by traders in various financial markets, including forex, stocks, commodities, and others. In this blog, we will discuss the standard pivot point and how it is calculated.

What is a pivot point?

    A pivot point is a technical analysis indicator that is calculated using the high, low, and closing prices of a financial instrument from the previous trading session. The pivot point acts as a reference point for determining potential support and resistance levels in the market. It is an important tool for traders to make informed decisions about entering or exiting positions based on market conditions.

How is a pivot point calculated?

The standard pivot point calculation is based on the previous day's high, low, and closing prices. The formula for calculating the pivot point is:

Pivot Point (PP) = (High + Low + Close) / 3

Once the pivot point has been calculated, the support and resistance levels can be determined using the following formulas:

First level of support (S1) = (2 * Pivot Point) - High

First level of resistance (R1) = (2 * Pivot Point) - Low

Second level of support (S2) = Pivot Point - (High - Low)

Second level of resistance (R2) = Pivot Point + (High - Low)

Third level of support (S3) = Low - 2 * (High - Pivot Point)

Third level of resistance (R3) = High + 2 * (Pivot Point - Low)

Using pivot points in trading:

    Traders use pivot points as a tool to determine potential support and resistance levels in the market. If the price of a financial instrument is trading above the pivot point, it is considered bullish, and if it is trading below the pivot point, it is considered bearish. The support and resistance levels can then be used as potential levels for entering or exiting positions.

    In addition to using pivot points for determining support and resistance levels, traders can also use them to identify potential trend changes. If the price of a financial instrument breaks through a resistance level, it may indicate a change in the trend from bearish to bullish. Conversely, if the price breaks through a support level, it may indicate a change in the trend from bullish to bearish.

    It's important to note that pivot points should not be used in isolation. Traders should consider other technical analysis tools, such as trend lines and moving averages, to confirm trend changes and support and resistance levels. Additionally, fundamental analysis, such as economic data releases and company earnings reports, can also impact market trends and should be taken into consideration when making trading decisions.

    Another important aspect to consider when using pivot points is the time frame. Pivot points are calculated based on the previous day's prices, so they are most commonly used by traders who are looking at daily charts. However, pivot points can be calculated for different time frames, including hourly, weekly, and monthly charts, depending on the trader's preference and the financial instrument being traded.

Conclusion:

    Pivot points are a valuable tool for traders looking to make informed decisions in the financial markets. By calculating the pivot point and the associated support and resistance levels, traders can better understand market conditions and make decisions based on market trends. While pivot points are not always accurate, they are widely used by traders and can provide a useful starting point for analysis. In conclusion, pivot points are a valuable tool for traders looking to make informed decisions in the financial markets. They provide a quick and easy way to determine potential support and resistance levels and can be used in conjunction with other technical and fundamental analysis tools to make trading decisions. However, it's important to understand that pivot points are not always accurate and should be used as a starting point for analysis rather than a sole basis for decision making.