Using Pivot Points for Predictions

You may have to import the indicator and then extract the files in the indicators folder of your trading platform. The entry was taken when price pulled back to the standard entry point. This trade netted a pip profit with just 32 pips of risk. Once you have that, then you could just plot the pivot lines on your trading chart within your trading platform. Place a limit take profit order at the next level.

Futures, and Forex 5 CHAPTER 2 Determining Market Condition: Bullish, Bearish, or Neutral 77 CHAPTER 3 How to Read Oscillators to Spot 2 CANDLESTICK AND PIVOT POINT TRADING TRIGGERS 9/25/06 AM Page 2. go up and Treasury prices should go down.

Interpreting and Using Pivot Points

If the price drops through the pivot point, that is bearish. The second method is to use pivot-point price levels to enter and exit the markets.

For example, a trader might put in a limit order to buy shares if the price breaks a resistance level. Alternatively, a trader might set a stop-loss at or near a support level.

While at times it appears that the levels are very good at predicting price movement, there are also times when the levels appear to have no impact at all. Like any technical tool, profits won't likely come from relying on one indicator exclusively. It enables anyone to quickly calculate levels that are likely to cause important price movements. The success of a pivot-point system, however, lies squarely on the shoulders of the trader and depends on his or her ability to effectively use the pivot-point systems in conjunction with other forms of technical analysis.

The greater the number of positive indications for a trade, the greater the chances for success. For additional reading, check out: The first resistance R1 and support S1 levels from the pivot point can be calculated by multiplying the pivot point by 2 and subtracting the Low or High respectively. Finally, the third resistance R3 and support S3 levels are calculated by subtracting the Low from the pivot point, multiplying by 2, and then adding the High or subtracting the pivot point from the High, multiplying by 2, and subtracting then subtracting the Low.

Better yet, there are indicators for your trading platform that do the calculations automatically, like this pivot point indicator for MT4. Below are 3 profitable pivot point strategies. The examples are geared toward Forex traders but these techniques work in other markets as well.

Other trading techniques that take advantage of trends and reversals, like those taught in Top Dog Trading or Infinite Prosperity , will also work well with these pivot point strategies. A trading system like Day Trading Forex Live will not work for entry triggers with these pivot point strategies because it works off of very specific stop run setups.

However, price is more likely to reverse when pivot points line up with other trading signals, regardless of the setup.

The pivot point bounce is a classic trading strategy. The idea is that if price is above the pivot point, the market sentiment is bullish. If price is below the pivot point, the market sentiment is bearish. The pivot point bounce takes advantage of market sentiment, buying or selling if price retraces back to the pivot point which is historically a good horizontal support or resistance level.

In the example above, I used a morning star , which is a strong bullish candlestick pattern, as my entry signal. You can also use pivot points and the various support and resistance levels calculated from them for trend trading.

The idea is to take advantage of retracements at significant levels after price has chosen a direction based on the pivot point. If price breaks through the first support or resistance level convincingly, and then retraces, you can buy or sell the bounce off of that resistance level.

In the example above, I used a bearish engulfing pattern , which is a strong bearish candlestick pattern, as my entry signal. Pivot point support and resistance levels can also be good places to take reversal trades. If price is showing signs of slowing down near the second or third support or resistance levels, these can be good places to buy or sell respectively — especially if these levels line up with previous market structure.

The idea is that, at support or resistance levels 1 and 2, price is likely to be extended. Since these levels are also typically good horizontal support and resistance levels they are great areas to look for reversal trades. In the example above, I used a shooting star with a confirmation candle which is how I prefer to trade them as my entry signal. The entry was taken when price pulled back to the standard entry point.

These 3 pivot point strategies are just a few of the many pivot point strategies that traders use to take advantage of these strong horizontal support and resistance levels. In fact, regardless of which trading strategies you use, pivot points can be a strong addition — especially for intraday trading. Each level of your pivot point calculations can be significant on their own.

However, these levels are particularly powerful when they line up with previous structure support and resistance levels in the market. I hope you enjoyed these 3 profitable pivot point strategies.

Be sure to backtest and demo trade any new strategies before live trading them. Going a step farther, we calculated the number of days that the low was lower than each S1, S2 and S3 and the number of days that the high was higher than the each R1, R2 and R3.

Again, the probabilities are with you. It is important to understand, however, that theses are probabilities and not certainties. This neither means that the high will exceed R1 four days out of the next 10, nor that the high is always going to be 1 pip below R1.

The power in this information lies in the fact that you can confidently gauge potential support and resistance ahead of time, have reference points to place stops and limits and, most importantly, limit risk while putting yourself in a position to profit. The pivot point and its derivatives are potential support and resistance. The examples below show a setup using pivot point in conjunction with the popular RSI oscillator.

This is typically a high reward-to-risk trade. The risk is well-defined due to the recent high or low for a buy. The pivot points in the above examples are calculated using weekly data. The above example shows that from August 16 to 17, R1 held as solid resistance first circle at 1.

This suggests that there is an opportunity to go short on a break below R1 with a stop at the recent high and a limit at the pivot point, which is now a support:. This first trade netted a 69 pip profit with 32 pips of risk.

The reward to risk ratio was 2. The next week produced nearly the exact same setup. The week began with a rally to and just above R1 at 1.

The short signal is generated on the decline back below R1 at which point we can sell short with a stop at the recent high and a limit at the pivot point which is now support:. Identify bearish divergence at the pivot point, either R1, R2 or R3 most common at R1.

When price declines back below the reference point it could be the pivot point, R1, R2, R3 , initiate a short position with a stop at the recent swing high. Place a limit take profit order at the next level. If you sold at R2, your first target would be R1. In this case, former resistance becomes support and vice versa.

Identify bullish divergence at the pivot point, either S1, S2 or S3 most common at S1. When price rallies back above the reference point it could be the pivot point, S1, S2, S3 , initiate a long position with a stop at the recent swing low.

Place a limit take profit order at the next level if you bought at S2, your first target would be S1 … former support becomes resistance and vice versa. Pivot points are changes in market trading direction that, when charted in succession, can be used to identify overall price trends.

Pivot Points

Membership is completely free, it includes access to the Pivot Points Trading Strategy, 2 other proven trading strategies and much more. Join thousands of fellow traders. Simply click the green button below to create your free account and get instant access right now. Pivot points are considered very objective, since they are calculated using a precise formula. The basic pivot point configuration include a basic pivot level (PP) with three resistance levels above (R1, R2, and R3), and three support levels below (S1, S2, and S3). Pivot points are calculated using the daily high, low and close of the Forex pair. To calculate the pivot point for the upcoming month of trading, you would take the high, low, and close prices of the current month and divide the sum by three.