A pivot point indicator could simply be a trader’s most loyal friend to recognize levels to place stops and identify possible profit targets for trading the financial markets.
The principle of pivot points is that price will often move relative to a previous limit, and unless an external force causes the price to do so, price should stop near an earlier extreme. Pivot points have been popular amongst traders for ages, and pivot points trading strategies vary, making it an innovative tool for forex traders.
What is a Pivot Point Indicator
A pivot point is an indicator used by traders as a price level measure for potential future market movements. Use the pivot point indicator to determine trend bias and levels of support and resistance. The pivot point indicator levels are good for setting profit targets, stop losses, entries, and exits.
How to use Pivot Ponts in Trading
Traders use pivot points in line with conventional support and resistance trading methods. Price usually respects pivot point levels as they do with support and resistance. Traders frequently use additional validation means such as candlestick patterns, technical indicators, fundamental analysis, and price action to use in combination with the pivot points to make decisions in the forex market.
Follow these basic guidelines when trading forex using pivot points:
Price above pivot = bullish bias (BUY)
Price below pivot = bearish bias (SELL)
Longer period pivot points are more reliable due to extended data.
Support and resistance levels act as additional key price levels.
Simple Pivot Point Trading Strategies
Pivot point breakout
Traders try to look at breaks of each support or resistance level as an opportunity to open a trade in a volatile market. This strategy can be especially suitable for longer-term traders, focusing on the weekly and monthly pivot points. However, you can practice this strategy for intraday trading as well. The charts below explain how a trader can set up a pivot point breakout strategy using the pivot point to indicate the trade direction and use the additional support and resistance levels. In this example, the pivot point indicator shows the daily pivot levels, which provide traders a reliable data during the trading day. The pivot point acts as a critical price level, which was initially respected a few candles before the breakout. Once the breakout happens, traders can enter into a short trade as the price below the pivot signals a bearish bias.
Pivot point bounce
Countless traders strive to concentrate their trading activity to the more volatile sessions in the market, aiming for the large moves.
The chart below shows how a trader can set up a pivot point bounce strategy using the pivot alone as an indication.
In this example, the pivot indicator is set up for a weekly period, which provides traders with a comprehensive data set for a more reliable key level. The pivot point is a key price level, which was initially respected some candles before the bounce. Once the bounce occurs, traders can open a short trade as the price below the pivot signals a bearish bias.
If you are not doing it already, it is time to start using a pivot point indicator with your support and resistance strategy. The pivot point indicator implies a reliable entry point providing you with a positive risk to reward ratio.
And Day Traders choose the Pivot Point indicator because:
- It is incomparable for day trading.
- It accepts short time frames.
- The pivot point levels are relatively accurate.
- The pivot point indicator is straightforward to use.
- The Pivot Point indicator for cTrader is FREE!