Pivot Points

If you're keen on diving into the exciting world of trading, you probably know about the significance of various tools and techniques. One of these tools, vital to understand market trends, is the concept of Pivot Points. But what are pivot points in trading? Let's unravel this term.

Understanding Pivot Points

Pivot Points are a technical analysis tool used by traders to determine potential points of price levels of financial market objects. They help traders forecast the overall market trend over different time frames and are also used as a benchmark for market trend and direction.

Pivot Points Calculation

The calculation of Pivot Points revolves around the high, low and closing prices of a previous trading day, week or month. The formula is quite simple, Pivot Point (P) = (High + Low + Close) / 3. Traders also use additional support and resistance levels for more precise calculation.

Visually Identifying Pivot Points

In charts, Pivot Points show up as a horizontal line depicting a certain level of price action. This level, known as the pivot level, manifests market sentiment. Above this line, markets are considered bullish. Below, they're assumed bearish. Traders often set multiple pivot points, indicating varying levels of resistance or support.

The Role of Pivot Points in Trading Strategy

Pivot Points are important in shaping a trading strategy as they provide an instant glimpse of market sentiment. Whether you're a short-term day trader or a long-term investor, pivot points can help predict price movements, provide targets and stop-loss points. The advantage of pivot points is their universal nature, offering benefits to traders across forex, stock and futures markets.

Key Takeaway

In summary, Pivot Points are invaluable for traders seeking to make sense of market movement and predict future price levels. They provide accurate, easy-to-understand data used to inform trading strategies, regardless of the market being traded in. So, the next time you examine a trading chart, remember to look out for these pivot points!