Intraday traders have to go through this term “Pivot Point” as it is the ultimate support-resistance strategy of all time. Support and Resistance level are the key factor in trading, without them, it is considered as blind trade. The specific study or Pivot was developed by floor traders of equity and commodity exchange. The word “pivot” means the central point or pin on which a mechanism oscillates. Here also, the indicator displays the same meaning. From the pivot point, the support and resistance level turn around. There is at least five version of Pivot points, we will discuss them later. The main discussion of the article is going to be “how to trade nifty using Pivot Point”. Before step into the main discussion, it’s important to provide a basic idea regarding what the Pivot Point is.
The basic idea about Pivot Point
The focus point of Pivot is the short-term trade in a fast-moving environment. By definition, from the pivot or central point rotation happens, a particular day’s dynamic or market activities depends on the PP. Technical analysts take the full advantages of the power behind PP. The calculation of PP depends on the previous high, low, close average. Most of the traders prefer to work on 5 min to 15 min time limit chart on PP as this time frame provides a much prominent signal. If the market holds the previous price average, the market action may rise but if the market opens below the average level, the market may fall.
Traders should know PP along with support and resistance level calculation in order to study the indicator properly. In our StockManiacs site, you will find the PP calculator and can calculate the PP, resistance, support value easily. There are a few techniques by which one can calculate this system.
Pivot Point (P)- (Previous high+Previous low+Previous close)/3
Support 1 (S1)- (P*2)-high
Support 2 (S2)- P-(high-low)
Resistance 1 (R1)- (P*2)-low
Resistance 2 (R2)- P+(high-low)
In our StockManiacs site, you can find another write-up on PP. If you are interested, can go through this.
Different Types of PP
Among the five different versions of PP, these pp are very much important:
- Standard PP- It starts with a base PP which is the average of previous high, low, close value. PP generally stands at the middle point of the support-resistance level.
- Fibonacci Pivot Points- It is almost similar to standard PP. Works on high, low, close price.
How To Trade Nifty Using Pivot Point
Finally, we come to the most significant part of the article, how to trade using PP. Nowadays, your broker’s terminal cal plot the Pivots for you on intraday chart. We use Zerodha Kite to plot PP. In order to make the strategy easy, an image is attached below:
This is the Reliance share price chart with 10 min time frame. As you can see the PP line along with support and resistance base are in different color, you can change the color according to your wish. Before going into the depth, let’s just look at the description below:
Resistance 1- Red, 2- Yellow, 3- Blue
Support 1- Green, 2- Brown, 3- Pink
As you can see, according to the last trading day, the market opens at the first resistance level and cross the third resistance level, indicates an uptrend in the market. The price open with a breakout of the resistance level. It means the market will go higher while open below the PP level generally indicates a downtrend in the market. It is advisable to buy a share at the support level and sell at the resistance level.
Therefore, the PP plays a significant role in intraday trading and traders follow the technique properly to get an indication of support and resistance level. Below is a video published by us on Nifty trading using the PP trading strategies.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.
Categories: Trading Strategy