How to Use Pivots Points for Day Trading
Pivot Points are used by traders to find support and resistance levels based on the previous day's price action.
This indicator is a very useful tool that use the previous bars' highs, lows and closings to project support and resistance levels for future bars.
This indicator provides an idea of where key support and resistance should be. Place the pivot points on your currency charts and price will bounce off one of these levels. These levels are used by investors to determine market tops, market bottoms or trend reversals.
- Daily pivots points are calculated from previous day's high, low, close which ends at 5.00pm EST(2100 GMT)
This indicator is shown below
The central pivot itself is the primary level, which is used to determine the trend
The other support and resistance levels are also important in calculating areas that can generate significant market movements.
This indicator can be used in two ways
The first way is for determining overall Forex trend: if the pivot point is broken in an upward movement, then the market is bullish, and vice versa. However, pivot levels are short-term trend indicators, useful for only one day until they need to be recalculated.
The second method is to use these points to enter and exit the markets. This indicator is a useful tool that can be used to calculate the areas that are likely to cause price movement.
These points should be used conjunction with other forms of technical analysis such as Moving averages, MACD and stochastic oscillator.
This indicator can be used in many different ways. Here are a few of the most common methods for utilizing them.
Trend Direction: Combined with other technical analysis techniques such as overbought/oversold oscillators, volatility measurements, the central point may be useful in determining the general trending direction of the currency exchange market. Trades are only taken in the direction of the Forex trend. Buy signal occurs only when the market is above the central pivot and sell signal occur only when the market is below the central pivot.
Price Breakouts: A bullish signal occurs when the market breaks up through the central pivot or one of the resistances (typically Resistance 1). A bearish signal occurs when the market breaks down through the central point or one of the supports (typically Support 1).
Forex Trend Reversals:
- A buy signal occurs when the price moves towards a support level, gets very close to it, touches it, or moves only slightly through it, and then reverses and moves back in the opposite direction.
- A sell signal occurs when the price moves towards a resistance level, gets very close to it, touches it, or moves only slightly through it, and then reverses and moves back in the opposite direction.
Stop loss and/or Limit Profit Values Determined by Support/Resistance: This indicator may be potentially helpful in determining suitable stop loss and/or limit profit placements. For example, if trading a long breakout above the Resistance 1 it may be reasonable to position a stop loss.
Combining with Moving Average Crossover System
A good indicator to combine and trade reversal signals is the moving average crossover which can be used to confirm the direction of a reversal signal.
An investor can then open an order once these two indicators give a signal in the same direction.
Moving Average Crossover Method
Moving average crossover method that can be combined with this indicator to come up with a trading system for generating buy and sell signals.