• A pivot point is used to calculate and analyze market trends over different time periods.
• Advanced traders use the previous day’s open, high, and low to determine current-day support and resistance levels.

Pivot points help in real-time technical indication to calculate reversals and identify trends in the equity and forex markets. This point enhances the marking of support and resistance levels to determine bullish and bearish trends across volatile market conditions. This analysis helps to mark the entry and exit points needed to make a trade profitable. Traders basically use this calculation on equity and commodity exchanges.

What is a Pivot Point?

A pivot point works as an indicator in trading. It helps in predicting support and resistance points in a given time frame. It probably defines price levels where a market facing a bullish or bearish trend could reverse or suffer a price fluctuation. The previous day’s open, high, low, and closing prices are used to calculate this. Traders use this method to mark entry and exit points while assessing market conditions and a target future price.

Support Level is the point where price levels are anticipated to achieve sufficient purchasing pressure to stop price decreases. On the other hand, a resistance level is determined to be a point where anticipation is made over the stopping of the price level at sufficient selling pressure to stop further increases in price. These levels are calculated with the help of Pivot points. 

‘High’ and ‘low’ terms are used to determine the highest and lowest price at which assets are being traded within a certain time frame. The final price at which the asset is traded during that particular time frame defines the asset’s Closing price. Experienced traders subsequently deploy pivot points in trading strategies. This assessment provides a potential reference point to locate necessary support and resistance levels. Pivot points are beneficial for traders who use trading strategies like day trading, swing trading, etc.

Types of Pivot Points

In the technical analysis of trading, pivot points can be of different types. This calculation allows traders to make profitable decisions by marking support and resistance levels as per their preferences.

Pivot Points can be further classified into different forms, such as Standard, Fibonacci, Woodie’s, Camarilla and Tom DeMark’s Point.

Importance of Pivot Trading

This trading strategy seems normal, but it proves beneficial in most of the cases where traders harness a profitable trade by pointing to support and resistance levels. Among so many advantages, we have listed some of the major points.

1. It proved fruitful in intraday trading. This trading technique is practically more precise than others.
2. The data calculated with the help of this method is only applicable to a single trading day. This makes pivot trading highly specific. But it is more beneficial in short-term time frames like 1, 2, or 5 minutes.
3. Pivot trading indicators are used as a tool when a user needs accuracy. This is because pivot points have an impact on the flow of the market through their extensive use.
4. It provides sufficient analytics for a trading session and the charts it provides have seven levels of trading calculation.

Conclusion

However, the pivot trading method is assumed to be helpful in profitable trades. But, there’s no technique that claims to achieve 100% efficiency in making trading decisions. For some users, this pointing method can be beneficial, but not in everyone’s case. Traders are advised to always use a stop-loss trading strategy to avoid any potential risk.