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The
pivot point is the level at which the market direction changes for the
day. Using some simple arithmetic and the previous days high, low and
close, a series of points are derived. These points can be critical
support and resistance levels. The pivot level, support and resistance
levels calculated from that are collectively known as pivot levels.
Every
day the market you are following has an open, high, low and a close for
the day , This information basically contains all the
data you need to use pivot points.
The
reason pivot points are so popular is that they are predictive as
opposed to lagging. You use the information of the previous day to
calculate potential turning points for the day you are about to trade
(present day).
Because so many
traders follow pivot points you will often find that the market reacts
at these levels. This give you an opportunity to trade.
Before
I go into how you calculate pivot points, I just want to point out that
I have put an online calculator and a really neat desktop version that
you can download for free HERE
If you would rather work the pivot points out by yourself, the formula I use is below:
Resistance 3 = High + 2*(Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = ( High + Close + Low )/3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2*(High - Pivot)
As
you can see from the above formula, just by having the previous days
high, low and close you eventually finish up with 7 points, 3
resistance levels, 3 support levels and the actual pivot point.
If
the market opens above the pivot point then the bias for the day is
long trades. If the market opens below the pivot point then the bias
for the day is for short trades.
The three most important pivot points are R1, S1 and the actual pivot point.
The
general idea behind trading pivot points are to look for a reversal or
break of R1 or S1. By the time the market reaches R2,R3 or S2,S3 the
market will already be overbought or oversold and these levels should
be used for exits rather than entries.
A
perfect set would be for the market to open above the pivot level and
then stall slightly at R1 then go on to R2. You would enter on a break
of R1 with a target of R2 and if the market was really strong close
half at R2 and target R3 with the remainder of your position.
Unfortunately life is not that simple and we have to deal with each trading day the best way we can.
pivot point is the level at which the market direction changes for the
day. Using some simple arithmetic and the previous days high, low and
close, a series of points are derived. These points can be critical
support and resistance levels. The pivot level, support and resistance
levels calculated from that are collectively known as pivot levels.
Every
day the market you are following has an open, high, low and a close for
the day , This information basically contains all the
data you need to use pivot points.
The
reason pivot points are so popular is that they are predictive as
opposed to lagging. You use the information of the previous day to
calculate potential turning points for the day you are about to trade
(present day).
Because so many
traders follow pivot points you will often find that the market reacts
at these levels. This give you an opportunity to trade.
Before
I go into how you calculate pivot points, I just want to point out that
I have put an online calculator and a really neat desktop version that
you can download for free HERE
If you would rather work the pivot points out by yourself, the formula I use is below:
Resistance 3 = High + 2*(Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = ( High + Close + Low )/3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2*(High - Pivot)
As
you can see from the above formula, just by having the previous days
high, low and close you eventually finish up with 7 points, 3
resistance levels, 3 support levels and the actual pivot point.
If
the market opens above the pivot point then the bias for the day is
long trades. If the market opens below the pivot point then the bias
for the day is for short trades.
The three most important pivot points are R1, S1 and the actual pivot point.
The
general idea behind trading pivot points are to look for a reversal or
break of R1 or S1. By the time the market reaches R2,R3 or S2,S3 the
market will already be overbought or oversold and these levels should
be used for exits rather than entries.
A
perfect set would be for the market to open above the pivot level and
then stall slightly at R1 then go on to R2. You would enter on a break
of R1 with a target of R2 and if the market was really strong close
half at R2 and target R3 with the remainder of your position.
Unfortunately life is not that simple and we have to deal with each trading day the best way we can.
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