Pivot Point Trading Strategy โ Comprehensive Guide 2024
Master the Art of Trading with Pivot Points
You need to learn how to trade the Pivot Point Trading Strategy the correct way, if you want to take full advantage of the power behind pivot points. Trading with pivot points is the ultimate support and resistance strategy. It will take away the subjectivity involved with manually plotting support and resistance levels.
Our team at Trading Strategy Guides will outline why using pivot points is so important!
Pivot Points are derived based on the floor trading guys that used to trade the market in the trading pit. Knowing this fact is important to appreciate the value pivot points can bring to your trading. The way bankers trade is different. So you can also read the bankers way of trading in the forex market.
Floor traders try to frame the day based on the previous dayโs trade. They use a framework or a boundary to analyze the market. Because of this, pivot points are universal levels to trade off of.
Make sure to check out our article on a great order flow trading strategy!
Traders using the pivot point system will attempt to identify the movement of an assetโs price, and whether that movement is likely to continue or โpivotโ in a different direction.Pivoting usually occurs around areas of strong resistance or support. In order to calculate this, you will identify the opening price, high point, low point, and closing price from the most recent trading period. Pivot points are also called the floor pivot points!
Pivot point trading is also ideal for those who are involved in the forex trading industry. Click To Tweet Due to their high trading volume, forex price movements are often much more predictable than those in the stock market or other industries.
The professional traders and the algorithms you see in the market use some sort of a pivot point strategy. In the old days, this was a secret trading strategy that floor traders used to day trade the market for quick profits.
Moving forward, weโre going to give you our introduction to pivot points and show you how to calculate the pivot points. Last but not least, give you a couple of examples of how to trade with pivot points. Also, read Personality Strengths and Weakness in Forex Trading.
Table of Contents
What are Pivot Points?
Pivot Points are significant support and resistance levels that can be used to determine potential trades. The pivot points come as a technical analysis indicator calculated using a financial instrumentโs high, low, and close value.
The pivot pointโs parameters are usually taken from the previous dayโs trading range. This means youโll have to use the previous dayโs range for todayโs pivot points.
Or, last weekโs range if you want to calculate weekly pivot points or, last monthโs range for monthly pivot points and so on.
Nextโฆ.
Weโll dive a little bit into the Pivot Point calculation, which only needs high, low, and close prices of the previous trading session.
Calculating Pivot Points for Trading Success
Pivot Points are automatically plotted on your chart so you wonโt need to waste any time calculating them. However, if you really want to have an intimate relationship with them, here is the pivot point calculator:
Pivot Point (P) = (High + Low + Close)/3
The main pivot point (PP) is the central pivot based on which all other pivot levels are calculated. The math behind the central Pivot Points is quite simple. We add yesterdayโs high, low and close and then divide that by 3, which is a simple average of the high, low and close.
And this is the math behind the support and resistance pivots:
- Support 1 (S1) = (P x 2) โ High
- Support 2 (S2) = P โ (High โ Low)
- Resistance 1 (R1) = (P x 2) โ Low
- Resistance 2 (R2) = P + (High โ Low)
The third support and resistance levels are calculated as:
- Resistance 3 (R3) = H + 2 * (PP โ L)
- Support 3 (S3) = L โ 2 * (H โ PP)
The central PP is just one of the main support/resistance levels. The best pivot point indicator will also plot 10 more distinctive layers of support and resistance levels.
Usually, if we are trading above the central pivot point, it is a signal of a bullish trend. If the price is trading below the central pivot point, it is considered a bearish signal.
Most modern trading software, or platforms, have the pivot points indicator in their library. So, you donโt have to calculate these levels manually on your own.
Nextโฆ
Letโs learn how to use pivot points to predict prices in the forex market.
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- Entry Points
- Exit Points
- Risk Managament
- Time Saving Tips
See below:
Utilizing Pivot Point Strategies for Successful Trading
Pivot points are one of the best tools used to time entries and exits in any market.
However, there is a lot of noise on when to buy with pivot points.
To know what works from what does not work weโll cover a few trade tactics that work in Forex day trading.
We donโt need to overcomplicate technical indicators. Technical indicators are just there for guidelines.
So, as a rule of thumb, the KISS strategy (keep it simple and stupid) most of the time is the best approach.
Letโs beginโฆ
Maximizing Forex Trading Profits with Pivot Points
These are the 5 most common ways that Pivot Points can guide you through the up and downswings in the market:
- Finding support and resistance levels.
- Pivot point breakout trading.
- Determine short-term market trends. The trend is bullish if we break above Resistance 1. Conversely, the trend is bearish if we break below Support 1.
- Intraday trend reversals. If todayโs trading range overextends all the way up to Resistance 2 or Resistance 3, there is a high chance that by the end of the day to see a short-term bearish reversal signal. Conversely, if todayโs trading range overextends all the way down to Support 2 and Support 3, we can expect a short-term bullish reversal signal.
- As for the entry and profit targets: Buy and sell at S3 (R3) if the price is unable to move any further and close the trade by the end of the current trading session.
All pivot points trading strategies revolve around these 5 trading principles.
Nextโฆ
Letโs see how to use pivot point in intraday trading.
See below:
Effective Day Trading Pivot Point Trading Strategy
The most powerful way to day trade using pivot points is the pivot point bounce strategy and breakouts of the central pivot point.
Let me explain:
Here is how to identify pivot point day trade setups using the central pivot point.
Step #1:
The market needs to start the new trading day consolidating above or below the central pivot point.
Step #2:
If the market consolidates below the central pivot point we look to buy potential upside breakouts. On the other hand, if the market consolidates above the central pivot point, we look to sell any downside breakouts.
Now letโs see an example:
The pivot point bounce strategy is simply trading bounces off of R1, R2, S1, S2 pivot points with the help of chart patterns.
Moving forwardโฆ
Letโs discuss why you should keep an eye on the daily pivot points.
See below:
Daily Pivot Point Trading Strategy
The daily pivot points are one of the most accurate PP levels because they incorporate the end-of-day closing prices.
Let me explain why daily pivot points are so powerful.
The close of the day is regarded as the most important price of all OHLC prices. The closing price is basically the settlement price that shows who won the bull-bear battle.
So, the bottom line is this:
Daily pivot points are more reliable than intraday pivot points.
If you day trade with pivot points make sure you go to settings and change the timeframe of the pivot points to daily. This way no matter if youโre looking at a 5-minute chart, or 1-hour chart, the pivot points youโll see are calculated based on the daily OHLC prices.
Nowโฆ
Here is a trading edge to use the daily pivot points.
See below:
Using Daily Pivot Points to Boost Forex Trading Strategy
The most powerful way to trade daily pivot points is to look after rejections of the central pivot point.
Let me explain this type of pivot point trade setup:
If during the trading day the market has established a strong bias above (below) the central pivot point we should expect any retest of the central PP to provide a rejection.
Hereโs whyโฆ
Letโs assume the market traded above the central pivot point for the most part of the day.
Maybe a piece of bad news hits the market and the price starts to fall and retest the central pivot point.
At this point, we would expect the buyers to show up again and defend their position in the market. So, if the buyers were really in control, we can expect a bounce.
This is a great chance to re-enter the market if you have missed the initial start during the day.
Here is an example:
Nextโฆ
Without further ado, letโs see how you can efficiently trade following the best pivot point strategy PDF.
Best Pivot Point Trading Strategy PDF
Pivot Points are one of our favorite trade setups. Weโre going to show you what the best method is to trade pivot points through our best pivot point strategy PDF.
The pivot point strategy doesnโt require significant trading capital. It can yield positive results right away.
More often than not retail traders use pivot points the wrong way. They usually sell too quickly when the first pivot point resistance level is reached and buy too soon when the first pivot point support level is reached.
This is the wrong way to trade because youโre trading against the prevailing momentum which is one of the reasons why retail traders lose money.
Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of the trading strategy. For this article, weโre going to look at the sell-side.
Step #1: Trade only at the London open or the 8:00 AM GMT
The best time to trade the pivot points strategy is around the London session open. However, it can be used for the New York session open with the same rate of success.
We trade the London open because thatโs the time big banks are opening for business, and the smart money operates in the market.
Note* Weโre going to use the 15-minutes time frame and trade based on the daily pivot points.
Weโve highlighted on the chart with a vertical line the London open as well as the beginning of a new trading day.
Step #2: Sell at the market if after the first 15-Minutes weโre trading below the Central Pivot Point
If after the first 15-minutes into the London trading session weโre trading below the central pivot point. Then we sell at the market.
The trade logic behind this rule is simple. Once the market is displaying a disposition to trade below the central pivot point, we assume that the bearish momentum will continue to persist.
If the price of any currency pair is trading below the central pivot point, then the bias for the day is bearish and weโre only looking for selling opportunities.
Important Note * If after the first 15-minutes into the London session weโre too close to the first support level we better skip this trade opportunity because the profit margin has tightened.
The next important thing we need to establish for our day trading strategy is where to place our protective stop loss (See Also:ย Trailing Stop EA).
See below โฆ
Step #3: Hide your Protective Stop Loss 5-10 pips above the Central Pivot
Itโs essential to have a good strategy for your stop loss as much as to have an entry strategy.
If the price breaks above the central pivot point then the sentiment has shifted on the bullish side and itโs wise to get out of any short trades. However, in order to accommodate any false breakouts, we also use a buffer of about 5-10 pips above the central pivot point for our SL.
Last but not least, we also need to define a take profit level for our pivot point strategy which brings us to the last step.
See below โฆ
Step #4: Take Partial Profit #1 at Support 1; Take Partial Profit #2 at Support 2.
We employ a multiple take profit strategy because we want to make sure we give the market the chance to reach for deeper support levels.
The first pivot point support level is the first trouble area and we want to bank some of the profits here. We also advise moving the protective stop loss to break even after you take profits.
At the second pivot point, the support level is where we want to liquidate our entire position and be square for the day.
Note** the above was an example of a SELL trade using the best pivot point strategy PDF. Use the same rules for a BUY trade โ but in reverse. In the figure below, you can see an actual BUY trade example.ย
Pivot Point Trading Strategy Video
Conclusion โ Pivot Point Trading Strategy
You need to start using aย pivot point trading strategyย as a complementary tool to your support and resistance strategy if youโre not doing it already.
These pivot point trading secrets are very powerful, price-based support and resistance levels.
Theย best pivot point strategy PDFย signals a good entry point near the central pivot point and also provides you with a positive risk-to-reward ratio which means that your winners will be higher than your losing trades.
Please leave a comment below if you have any questions onย how to trade with pivot points!
Pivot Point Trading Strategy Frequently Asked Questions
1. What is a pivot point in trading?
โข A pivot point is a technical analysis indicator used to determine the overall trend of the market over different time frames. It is calculated by taking the average of the high, low, and closing prices from the previous trading session.
2. How are pivot points used in trading?
โข Pivot points are used as a support and resistance level indicator in trading. Traders use them to identify potential reversal points, as well as to determine when to enter or exit trades.
3. How are pivot points calculated?
โข Pivot points are calculated using the high, low, and closing prices from the previous trading session. The pivot point is the average of these prices, while the support and resistance levels are calculated using various formulas.
4. What are the different types of pivot points?
โข There are several types of pivot points, including standard pivot points, Fibonacci pivot points, and DeMark pivot points. Each type uses a different formula to calculate the support and resistance levels.
5. What are the limitations of pivot points in trading?
โข Pivot points are based on historical data and do not take into account current market conditions, such as news events or economic data releases. Additionally, pivot points are not always accurate, as they are based on averages and do not account for sudden market movements. Traders should use pivot points in conjunction with other technical analysis tools to make informed trading decisions.
6. How do traders use pivot points to identify support and resistance levels?
โข Traders use pivot points to identify key price levels that can act as support and resistance. The pivot point itself is considered the first level of support or resistance, while additional support and resistance levels are calculated using formulas based on the pivot point.
7. Can pivot points be used for day trading?
โข Yes, pivot points can be used for day trading as well as swing trading. Day traders often use pivot points to identify key levels for entry and exit points in intraday trades.
8. What is a pivot point strategy?
โข A pivot point strategy is a trading approach that uses pivot points to identify potential trades. Traders may use a variety of pivot point strategies, such as trading the bounce off the support or resistance levels or using pivot points to identify trend reversals.
9. Are pivot points effective in predicting market movements?
โข pivot points can be effective in predicting market movements, but they are not always accurate. Traders should use pivot points in conjunction with other technical analysis tools and consider current market conditions before making trading decisions.
10. Can pivot points be used in conjunction with other technical analysis tools?
โข Yes, pivot points can be used in conjunction with other technical analysis tools such as moving averages, trend lines, and candlestick patterns. Combining pivot points with other tools can provide traders with a more comprehensive view of the market and increase the accuracy of their trading decision.
Pivot Point Trading Strategy PDF Infographic Download
Please Share this pivot point trading strategy PDF Below and keep it for your own personal use! Thanks Traders!
It is fine but difficult to digest for beginner like me
I understand that the information provided can be overwhelming for beginners. Here are some key takeaways that may help simplify the concept of trading with pivot points:
1) Pivot points are technical indicators used to identify potential support and resistance levels in the market.
2) There are three main types of pivot points: standard, Fibonacci, and Camarilla.
3) Pivot points are calculated using the previous dayโs high, low, and closing prices and can be used on any timeframe.
4) Pivot points can be used to identify entry and exit points, set stop-loss and take-profit levels, and confirm trading signals.
5) Pivot points can be used in conjunction with other technical indicators and fundamental analysis to help identify trading opportunities.
6) Pivot points are not 100% accurate and should be used in conjunction with proper risk management.
I hope this helps make the concept of trading with pivot points more digestible for you.
thank you
Welcome
Can the pivot levels from a daily chart be used in the 30mins chart
Yes, pivot levels calculated from a daily chart can be used on a 30-minute chart as the pivot levels can be applied to any timeframe chart. Traders often use pivot levels on multiple timeframes to help identify potential support and resistance levels across different trading periods.
Can I use pivot point in stock market not forex.
Yes, pivot points can be used in the stock market as well as in forex trading. Pivot points are a popular technical analysis tool used to identify potential support and resistance levels based on the previous dayโs price action. They can be applied to any market, including stocks, to help traders make trading decisions based on the current market conditions.
Please provide pivot point tool for pp strategy
please how can i get the pivot point indicator installed on my MT4?
Download Pivot point calculator
To install the pivot point indicator on MT4:
1) Open MT4 and log in to your account.
2) Click on โFileโ > โOpen Data Folder.โ
3) Open the โMQL4โ folder and then the โIndicatorsโ folder.
4) Download the indicator file from a reputable source.
5) Copy the file into the โIndicatorsโ folder.
6) Restart MT4.
7) Find the indicator in the โNavigatorโ window under โIndicators.โ
8) Drag it onto your chart to apply it.
Nice and clear explanation
Thank you
Letโs say youโre using weekly pivot points on US stocks. If on Monday morning, right when the market opensโฆ.price opens above the central weekly pivot. Do you play it to the long side with a target of R1. Orโฆ.if it opened above the central pivot point, do you wait for it to pull back to the central pivot, then go long? I would really appreciate the help. Read an article that said 80% of the time, price will hit the central pivot and to only buy/sell at central pivot
The decision of whether to enter a long trade on a US stock when the price opens above the central weekly pivot point will depend on your trading strategy and risk management plan. You may consider going long if you trade with the trend and set a target at R1, or wait for a confirmation pullback to the central pivot point before entering the trade. Remember to have a well-defined trading plan and be aware of potential risks before entering any trades.
Excellent
Thank you
Itโs concise and comprehensive.
Thank you so much