Pivot points are one of the widely used indicators for day trading. This tool creates a special plan with a level of support and resistance to seven levels to find the turning point during the day in the market.
Below is the view that will appear in a one hour chart of the seven-level AUD / JPY currency pairs in the view.
While traders often find their own receptions and resistance by finding the previous turning point in the market, the spot will automatically plan every day. Because many market participants follow these levels, the price is likely to respond to them.
Calculation of Pivot scores
Can calculate the Pivots points for various time frames in the software program, creating a product, a program that allows you to customize the indicator. For example, some programs may allow you to calculate pivots for weekly or monthly intervals. But the standard indicator is the plot at a daily level.
Central price – The pivot point – calculated as a low market function and closes from the previous day. (Or the general period) These values are included and divided by three. This is the same concept as “normal price”.
Pivot Point = [High (Previous) + Low (Previous) + Close (Previous)] / 3
The other six levels – three levels, support and three resistance levels – all use the value of the pivot point as part of their calculations.
The level of three levels is called support.
Support 1, support 2 and support 3 levels, three-level resistance is called anti-1, resistance 2 and resistance 3. You may see their shorthand pattern called S1, S2 S3 and R1, R2, R3.
These values are calculated as follows:
- Resistance 1 = (2 x Pivot Point) – low (earlier)
- Support 1 = (2 x Pivot Point) – High (Previous)
- Resistance 2 = (Point – Support 1) + Resistance 1
- Support 2 = Rotation point – (1 – 1 resistance)
- Resistance 3 = (Point – Support 2) + Resistance 2
- Support 3 = Rotation point – (Resistance 2 – Support 2)
Due to the price level depending on the low and close of the previous day, the wider range between these values will make the distance between the higher the next trading day. Likewise, even more, the trading period is shortened, the distance between the levels will be less the next day.
It should be noted that not all levels must appear on the chart simultaneously. This means that the price of the price graph is that some levels are not included in the viewing window.
Using Pivot Points
Pivot points are first used in stocks and in the futures market, even if the indicator has been widely modified for the exchange day of the exchange market.
Pivot points have an advantage in being a leading indicator, which means that traders can use the indicator to measure the turning point that may occur in the futures market. They can act as a trading goal using them as a reception or resistance or a level for Stop Loss and / or Take Profit levels.
For example, we will see many cases of S1 that act as support.
The pine point which is the middle line and the closing level, which is calculated, everything is the main focus. If the purchase price is higher than the pivot point, the market confidence may be considered today.
If the market is balanced, the price may be reduced and flowing around the pivot point. We can observe this price behavior in the table below.
Although R1, R2 and R3 are called in the sense that they may act as a resistance when the market rises. If the price is higher than them, they can act as a receptionist. If the price is moved down The same thing is true for S1, S2 and S3, which can act as a resistance to any movement that is backed up when they break into a reception line.
Using Pivot points for measuring the probability
Some traders use Pivot points to assess the probability of the movement of sustainable prices. Even depending on the market But the probability of the following will be reported in general in terms of the possibility that the price will close the trading day higher or lower than the following levels:
- Closed higher than R1 40% of the time
- Closed lower than S1 40% of the time
- Closed higher than R2 15% of the time
- Closed lower than S2 15% of the time
- Closed higher than R3 5% of the time
- Closed lower than S3 5% of the time
Of course, these things are just a rough estimate. Because the price is moving high or lower than the outside level does not mean that the movement is incorrect or sustained. For example, you should not assume that according to the above information, you have a 85% chance to win a trading. If you enter the holding a long status when the price enters S2, of course, it is not true in itself.
Pivot Score is Stop Loss
Some traders will trade at this level. Expected to be reversed while using the next level below (In the case of long trade) or higher (In the case of short-term trading) is a loss of losses.
For example: Here we see a short list at R1 and Stop Loss at R2.
Trading using Pivot points
At this point, it should be quite frankly that the use of the spot is a turning point in the future. Trading at these levels in the direction of the expected reversal is a general technical strategy.
In order to improve the life of this strategy, the trader will tie a pivot rating strategy with other indicators. For example, one may use 50 installed moving averages to measure the trend and trade bias of one person only in the direction of that trend.
In addition, instead of using the first tap of the spur, one may require a secondary touch to confirm that the correct level is the turning point. Below is an example of the reason “Confirm” The correctness of that level is the best before trading by basic touch. This is a five-minute chart of EUR / USD.
When the data or news comes out, the amount will increase clearly and the previous trading movement and the support between the day and the resistance level may be outdated quickly. On a large green bar, the price is not definitely between the two spur levels. But if we make each pivot trading, we will trade both long and short within five minutes.
After the market, the market depressed and agreed firmly without showing sensitivity to the pivot point.
So you have to be careful and make sure you don’t try to trade at the market level. There is no intention to be respected when there are a lot of markets.
If we write our rules for this system:
- If the moving average is 50 installments, there is a positive slope. It takes only a long time to trade. If the 50 moving average is simple, negative to be brief trading only.
- Trading when tapping the secondary level of the pivot level after the first confirmation that the main exposure is a denial level
This will be applied to a 5 minute chart, but can also be applied to higher time compression. For daily traders that use the daily Pivot points, the use of 5 minutes to the hourly chart is the most reasonable. Swing traders may use weekly pivot points to be the best to use the four-hour daily strategy. Position traders may be most suitable to use monthly essence points on daily or weekly charts.
But this is a relatively simple and effective system.
Example
Here we have a 5 minutes chart of the currency pair. EUR / USD
The price is in the downtrend for today. The price will fall off the S2 level (acting as a resistance) once when adjusting the base back to short-term trading. When tapping the second S2 level.
This trade works well after continuing the downward trend. After a long time.
Of course, what is the question? How can you determine how to go out?
Before trading, you must have a plan. To do this, there may be many forms.
Many options are displayed in the diagram below.
The level of resistance occurs after the trade starts moving in our direction. In nature, expecting to have anti-occurrences in the future may be reasonable.
Moreover, if the price is starting to gather and any driving force in the trend – or the amount in the overall market – has faded. Then we can choose to leave the trade.
Or we can touch the moving average Some traders use the moving average that has been more popular – 50-, 100- / or 200-time period – as a reception and resistance or considering the change of the trend if the price is higher than any average. Followed
Natural profitability in the sensitive score system is at the next level in the hierarchy. In this case, if we do short-term trading, our profitability S2 may be S3, but as mentioned above, reaching the outermost level, such as S3 and R3, is generally rare.
It is completely protected for daily investors to bring trading out of the table to the end of the trading date when the volume is clearly reduced.
On-time terms
It should be noted that the pivot point is sensitive to the time zone. Most spur points will look at the closed price in New York or London.
Therefore, some people who use the chart software, using the time off in San Francisco or Tokyo or other time zones may have different pivot points in their charts that may not be tracked at a big level. This may cause them to be turned off or without value.
Therefore, it is recommended to schedule your chart for New York or London hours. These things involve GMT or UTC, especially depending on how each person is in the calendar. Because both cities take time to save light in the daytime.
No matter which time you choose, know that the pivot point can be reversed by viewing the previous price information. It is important to be sure that the price is sensitive to these levels in the market you are trading.