Stock Indices Pivot Points

Pivot points is a set of indicators created by floor traders in the commodities markets to ascertain potential turning points, also known as "pivots". These points are calculated to determine levels in which the sentiment of the trend could change from "bullish" to "bearish." Stock traders use these points as markers of support & resistance.

These points are calculated as the average of the high, low and close from the previous session:

Stock Indices Pivot Point = (High + Low + Close) / 3

Day traders use the calculated pivots to determine the levels of entry, stops and profit taking, by trying to determine where the majority of other stock traders may be doing the same.

A pivot is a price level of significance in analysis of a financial market that is used by traders as a predictive indicator of stock index price movement. It's calculated as an average of significant prices (high, low & close) from the performance of a market in the prior trading period. If the prices in the following period trades above the central point it's usually evaluated as a bullish sentiment, whereas if stock index price below the central point is seen as bearish.

The central point is used to calculate additional levels of support & resistance, below & above central point, respectively, by either subtracting or adding price differentials calculated from previous trading ranges.

A pivot-point & the associated support and resistance levels are often turning points for the direction of stock index price movement in a market.

• In an up trend, the pivot-point & the resistance levels may represent a ceiling level for the price. If stock index price goes above this level the up trend is no longer sustainable and a trend reversal may occur.

• In a down trend, a pivot-point & the support levels may represent a low for price level or a resistance to further decline.

The central pivot can then be used to calculate the support and resistance areas as follows:

Pivot points consist of a central point level surrounded by three support levels below it and three resistance levels above it. These points were originally used by floor traders on equity and futures exchanges because they provided a quick way for those traders to get a general idea of how the market was moving during the course of the day using only a few simple calculations. However, over time they have also proved exceptionally useful in other markets as well.

One of the reasons they are now so popular is because they are considered a "leading" (or predictive) technical indicator rather than a lagging indicator. All that is required to calculate the pivot points for the upcoming (current) day is the previous day high, low, and close prices. The 24-hour cycle pivot points in this indicator are calculated according to the following formulas:

The central pivot can then be used to calculate the support & resistance areas as follows:

Resistance 3

Resistance 2

Resistance 1

Pivot Point

Support 1

Support 2

Support 3

Pivot Points Support & Resistance Areas

Pivot Points as a Stock Indices tool

The pivot point itself represents a level of highest resistance or support, depending on the overall sentiment. If the market is direction-less ( range bound ) stock index prices will often fluctuate greatly around this level until a price breakout develops. Prices above or below the central point indicates the overall sentiment as bullish or bearish respectively. This technical indicator is a leading indicator that provides signals of potentially new highs or lows within a given chart time-frame.

The support and resistance levels calculated from the central point and the previous market width may be used as exit points of the open trades, but are rarely used as entry signals. For examples, if the price is up-trending and breaks through the pivot point, the first or second resistance level is often a good target to close a position, as the probability of resistance and reversal increases greatly, with every resistance level.

In pivot point analysis three levels are oftenly recognized above and below the central point. These are calculated from the range of stock index price movement in the previous trading period & then added to the central point for resistances & subtracted from it for support levels.

Pivot Points

Pivot levels can be used in many different ways. Here are a few of the most common techniques for utilizing them:

Trend Direction: Combined with other Stock Indices Trading analysis techniquesmethods such as overbought/oversold oscillators, volatility measurements, etc., the central point might be useful in determining the general trending direction of the market. Trades are only taken in the direction of the trend. Buy trades occur only when price is above the central point and sell stock trades occur only when the price is below the central pivot points.

Price Breakouts: In price breakouts, a bullish buy signal occurs when the price breaks up through the central point or one of the resistance levels (typically Resistance Level 1). A short sell signal occurs when price breaks down through the central point points or one of the support levels (typically Support Level 1).

Trend Reversals: In trend reversals, a buy signal occurs when market price moves towards a support level, gets very close to this point, touches this point, or only moves slightly through this point, and then reverses and starts moving in the other direction.

To download this Pivot points Indicator:

https://c.mql5.com/21/9/pro4x_pivot_lines.mq4

Once you download the indicator. open it with the MQL4 Language Meta-Editor, Then Compile the technical indicator by pressing Compile Button and it'll be added to your MT4.

Note: Once you add it to your MetaTrader 4, the indicator has additional lines named MidPoints, to remove the extra lines open MQL4 Meta Editor(short-cut keyboard key - press F4), and change line 16 from:

Extern bool mid-pivots = true:

To

Extern bool mid-pivots = false:

Then Press Compile button again, and the indicator will then appear as exactly illustrated on www.tradeforextrading.com website.