Pivot Points Indicator is a predictive or leading indicator. Traders use the price level as a possible supports and resistance between market movement. Simply, it itself is the average of high, low, and closing price from the previous trading day. The whole content is about the Pivot Points trading along with its features, set up, strategies and more.
Pivot Points Indicator FAQ
Generally, Pivot points are leading or predictive indicators. It determines the overall trend of the market over multiple time frames. The tool provides specialized plots of the support-resistance levels. The term “Pivot” means a central point on which a mechanism turns or oscillates.
Pivot Points are normally used by intraday traders but sometimes it works well in long term trading also. Based on the center price level, the Pivot point, there are 6 price levels. Three support levels and three resistance levels.
As we know that the price levels are based on the high, low, close of the previous day. So wider the range between these values, the greater the distance between levels and vice versa. There are few sure shot formulas of Pivot Point calculation, explained below.
We’ve already mentioned that intraday traders generally use this indicator most. To find the support/resistance level and entry-exit bounce, Pivot Point consider as one of the most popular indicators in intraday trading.
Among the five different versions of PP, these two are very much important. Standard or Classic Pivot Points – 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.
Origin History of the Pivot Points
Floor traders mainly used the Pivot Points to set key levels. In this, the floor traders are the original day traders and they deal in a very fast-moving environment with a short-term focus. At the beginning of the trading day, floor traders would look at the previous day’s high, low and close to calculate a pivot point for the current trading day. This Pivot Point as the base, further calculations were used to set support 1, support 2, support 3, resistance 1, resistance 2 and resistance 3. These levels would then be used to assist their trading throughout the day.
Top Features of Pivot Points
- Pivot points analysis is a technique for determining key levels.
- It tends to function as support or resistance and can be turning points. This technique is used by day traders.
- There are several methods of identifying the exact points. There are some different versions of pivot points likes Traditional, Fibonacci, Woodie, Classic, Camarilla and DeMark. Each type has its own calculation method.
- Therefore, the maximum use of pivot points is the variation of significant prices like established highs, lows, opening, and closing prices and then apply a calculation to determine these points.
- These are calculated additional support and resistance levels alongside the pivot points. These can be used to determine when to enter or exit trades or to determine the range of a market.
- In this indicator, conservative traders look for additional confirmation before entering a trade.
Formulas of Pivot Points
When we take Pivot Points, we take the whole support-resistance levels calculations as well. Traders should know PP along with support and resistance level calculation in order to study the indicator properly. The calculation of PP depends on the previous high, low, close average. In our StockManiacs site, you will find the Pivot Point Calculator and can calculate the PP, resistance, support value easily. There are a few techniques by which one can calculate this system.
Here, P defines the pivot point which is calculated by the addition of the high, low, close, divided by 3. Based on the center price level or Pivot point, support-resistance levels being formulated.
How to Use Pivot Points in Trading?
On Zerodha Kite
Traders can find the Pivot Points indicator under the STUDIES section in the Zerodha Kite browser app as well as in the Kite mobile App. We can attach the Pivot points indicator on to intraday charts because they are mainly for intraday trading. Please check the image below to understand how we attached the Pivot points indicator in the HDFC Bank share price chart.
On Upstox Pro
Here, also the strategy is almost the same as the Zerodha Kite. First of all open the account, then a chart of any preferred asset. Now, look for the indicator search option, write down the indicator name. Lastly, click on apply.
How to Trade Pivot Points Successfully?
There are a few top best ways by which one can trade with Pivot Points successfully. I’ve listed below some of them. So, just let’s have a look.
Day traders can use 5-minute or 15-minute chart which is most reasonable. Swing traders may use weekly pivot points and it would be best to apply the strategy on the four-hour to the daily chart. Lastly, Position traders would probably best be suited to use monthly pivot points on either the daily or weekly chart.
The most basic strategy is always having a look at the opening candle. If a stock price opens above the Pivot or Center level, the stock is about to rise. Look at the picture below, here I take 30 min chart and day’s first candle opens above the Pivot level. And, after opening it moved upwards.
Now, we will go forward to the support resistance level. In simple terms, support is from where a price bounce downward or upward. The opposite is the resistance, from there price goes down.
Observe the picture carefully. Here, the price took support at the S1 (support 1) level and moved in the upward direction.
The above chart is an example of the resistance level. Here, the price was moving upward but at R1 it took the resistance and started moving downward.
Now, look at the above graph, as you can see that the R1 (resistance 1) acted as a support level from where the price takes a bounce and move upward.
Just in the opposite way, sometimes price also take support as a resistance. Like the above picture, the price takes S2 (support 2).
More example of Pivot Points Trading
Nowadays, your broker’s terminal cal plot the Pivots for you on intraday chart. We uses 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:
- Pivot- White
- 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.
7 Things You Must Know To Trade Pivot Points
A pivot point is a leading indicator for all markets. Learning how to trade pivot points is not at all a rocket science. The first thing you must practice in pivot point trading is to be patient with yourself.
Be bold in trading but the boldness must be calculative. There are bold traders and there are old traders, but there are no old bold traders. One thing you must note pivot point trading is not a get rich quick scheme, it is a regular earning process. Pivot points trading are in fact a great way of improving your trades.
You can use last trading days open, high, low and close values to get next days floor pivot values. But thanks to technology. Now almost every charting platforms come with floor pivots. Floor pivots are the most popular pivots used in cash, futures and commodities markets. Floor pivots are calculated in advance as predictive support and resistance levels from where the market can reverse back. The primary pivot point (PP) is the point where the market changes between bullish to bearish. The support and resistance levels are predictive targets or bounce back points. Check the image below:
Remember the following rules
Daily floor pivots were originally calculated by pit traders to predict intraday turning points. So, how to trade pivot points as a strategy – my 7 point guide to trading pivot points:
- Use a 15 minutes chart for intraday.
- Use pivot points as support or resistance.
- In some cases, the trader uses a pivot point as an entry point when the price is able to break through the pivot.
- In other cases bounce from the pivot point is considered as an entry in counter-trend trade.
- The resistance 1 (R1) and support 1 (S1) provides advance countertrend entries.
- In both cases, the trader needs confirmation from the momentum indicators.
- In addition to daily pivots I recommend using monthly and weekly pivot points. Weekly and monthly pivot points are of more concern to swing position traders.
Example of Nifty trading with Pivot Points
Below is a video published by us on Nifty trading using the Pivot Points trading strategy.
The most complete trading book on this subject is Secrets Of A Pivot Boss by Frank Ochoa. True Pivot lovers can learn many hidden secrets of this trading technique in this book. All trading codes are also included in the book. Click below to order Secrets Of A Pivot Boss from Amazon.
Download Pivot Points PDF
Here we provide chapter 5 of this costly ebook as a sample. Where Franklin Ochoa has described the Classic Pivots. Unlock the download link by using any of the social share buttons below.
However, it usually starts with a cross of the Pivot Point. In sometimes the market starts above or below the Pivot Point indicator. Support and resistance come into play once it approached close to the Pivot level after opening. The concepts behind Pivot Points can be applied across various time frames which is designed for floor traders. It is important to confirm this pivot Point signals with other aspects of technical analysis as with all indicators. A bearish candlestick reversal pattern could confirm a reversal of first or second resistance. RSI could confirm oversold conditions at second support.