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Pivot Trading: How It Will Help You Become a Better Trader

Pivot trading is a form of trading in which pivot points are used. Both intraday and swing trading benefit greatly from pivot trading.

By Amit PatilPublished 3 years ago 2 min read
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In both stock and commodity markets, pivot points can be used.

Pivot points are used by traders to determine the area of support and resistance.

In pivot trading, the pivot point serves as the main support and resistance.

Pivot points are used to forecast support and resistance levels for the current or future trading session by using the high, low, and close from previous trading sessions.

We'll go into how to calculate pivot point levels and how to use them in practice in this section.

How to Calculate the Pivot Points?

The most popular method for estimating pivot points is the five-point method.

By combining the previous day's high, low, and close, this method determines a pivot point. It also measures two levels of support and two levels of resistance.

Pivot Point Calculation Formula

Pivot Point = (Previous High + Previous Low + Previous Close) / 3

Support 1 (S1) = (Pivot Point ∗ 2) − Previous High

Support 2 (S2) = Pivot Point − (Previous High − Previous Low)

Resistance 1 (R1) = (Pivot Point ∗ 2) − Previous Low

Resistance 2 (R2) = Pivot Point + (Previous High − Previous Low)

7 Levels of Pivot Points

pivot points

On the chart, there are seven basic pivot levels:

(PP) – This is the chart’s middle and basic pivot level; also called basic pivot level.

(R1) – The first pivot level above the basic pivot level.

(R2) – The second pivot level above the PP and above R1.

(R3) – This is the third pivot level above the PP and the above R1, R2.

(S1) – The first pivot level under the PP.

(S2) – This is the second pivot level below the PP and S1.

(S3) – This is the third pivot level below the PP and S1, S2.

Pivot Points Trading Strategy

  • The pivot point is the average of the high, low, and closing prices from the previous day.
  • The market is called bullish if it opens or holds above the pivot level (PP), while prices below the pivot level (PP) indicate a bearish trend.
  • You can buy the stock with a target of R2 if it breaks resistance 1 or R1.
  • You may short the stock with a target of S1 if the opening price is lower than the PP.

Finally, pivot point is a great indicator for assessing levels of support and resistance, but they work well when combined with other technical indicators.

  • The pivot point indicator is used by many day traders.
  • This will motivate you to trade in line with the overall market trend.
  • On charts, pivot points have a variety of information.
  • The indicator, as previously mentioned, provides seven different trading levels.
  • For a day trader, this is more than enough to get through the trading session.
  • On the majority of trading platforms, the pivot points indicator is available.

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About the Creator

Amit Patil

Professional trader and a blogger who loves reading books.

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@Desitrader.in

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