How do Pivot Points work in your trading?

Pivot Points, Pivot Points or Pivot Points, utilize the previous period’s high, low and close that will define future support and resistance. Pivot Points are important levels that chartists use to determine directional movement, resistance and support. Concerning this, Pivot Points are predictive of leading indicators. There are about five unique versions of Pivot Points. We will concentrate on the Standard Pivot Points, Fibonacci Pivot Points and Demark Pivot Points. Originally, Pivot Points were used by floor traders to set key levels. Floor traders are the original day traders. They worked in a fast-moving environment with a short-term goal. At the start of the trading day’s floor, traders would check out the previous day’s high, low, and close to figure out a pivot point for the current trading day. With this Pivot Point as a basis, extra calculations were used to fix support 1, support 2, resistance 1 and resistance 2. These fixed levels would be used to help their trading throughout the day.

Timeframes

Pivot Points for 1, 5, 10 and 15 minute charts use the previous day’s high, low and close. For example, Pivot Points for today’s intraday chart can be set entirely on yesterday’s high, low and close. The Pivot Points do not change and remain in play throughout the day once set. Pivot Points for 30 and 60 minute charts use the previous week’s high, low and close. These estimates are based on calendar weeks. At the beginning of the week, Pivot Points for the 30 and 60 minute charts remain fixed for the entire week. They will change once the week is over and then new Pivots are calculated. Pivot Points for each day chart use the previous month’s information. Pivot Points for June 1 would be determined on the high, low and close for the previous month. They are fixed for the entire month of June. Brand new Pivot Points would be calculated on the first trading day of July. Again based on the high, low and close for June. Pivot Points for weekly and monthly charts will use the previous year’s data.

Standard pivot points

Standard Pivot Points start with a base Pivot Point. This is a simple average of high, low and close. The middle pivot point is indicated as a solid line between the support and resistance spikes. Remember that high, low and close are all from the previous period. Pivot Point (P) = (High + Low + Close)/3 Support 1 (S1) = (P x 2) – High Support 2 (S2) = P – (High – Low) Resistance 1 (R1) = (P x 2) – Low Resistance 2 (R2) = P + (High – Low) The following chart shows the Nasdaq 100 ETF (QQQ) with Standard Pivot Points on a 15-minute chart. At the start of trading on June 9, the Pivot Points are at the center, resistance levels are above and support levels are below. These levels will remain consistent throughout the day.

Fibonacci Pivot Points

Fibonacci Pivot Points start just like Standard Pivot Points. From the base pivot point, Fibonacci multiples of high-low differential are added to form resistance levels and subtracted to form base levels. Pivot Point (P) = (High + Low + Close)/3 Support 1 (S1) = P – {.382 * (High – Low)} Support 2 (S2) = P – {.618 * (High – Low)} Support 3 (S3) = P – {1 * (High – Low)} Resistance 1 (R1) = P + {.382 * (High – Low)} Resistance 2 (R2) = P + {.618 * (High – Low)}
Resistance 3 (R3) = P + {1 * (High – Low)} Note the chart below. It shows the Dow Industrials SPDR (DIA) with Fibonacci Pivot Points on a 15 minute chart. R1 and S1 are structured at 38.2%. R2 and S2 are structured at 61.8%. R3 and S3 are based on 100%.

Demark Pivot Points

Demark Pivot Points start with a different base and use different formulas for support and resistance. These pivot points are dependent on the coupling between the closed and the open. If Close < Open, then X = High + (2 x Low) + Close If Close > Open, then X = (2 x High) + Low + Close
If Close = Open, then X = High + Low + (2 x Close) Pivot Point (P) = X/4 Support 1 (S1) = X/2 – High Resistance 1 (R1) = X/2 – Low The chart below shows the Russell 2000 ETF (IWM) with Demark Pivot Points on a 15 minute chart. Note that there is only one resistance (R1) and one support (S1). Demark Pivot Points will not have multiple support or resistance levels.

Setting the tone

The pivot point determines the normal tone of the price action indicated by the center line of the group marked (P). An indication above the pivot point is positive and shows strength. But the pivot point is based on the previous period’s information. It is presented in the current period as the first significant level. A move above the pivot point conveys strength with a target to the first resistance. A break above the first resistance indicates even more strength with a target to the second resistance level. On the minus side, it is the other way around. A move below the pivot point implies weakness with a target to the first level of support. A break below the first level of support indicates even more weakness with a target to the second level of support.

Support and resistance

Support and resistance levels found at Pivot Points can be applied just like traditional support and resistance levels. The main thing to watch closely is price action when these levels come in. Should prices fall to support and then firm, traders can look for a successful test and get support. It helps to check out a bullish chart pattern or indicator signal to prove a rise from support. Similarly, if prices were to rise to resistance and stall, traders can look for a failure at resistance and decline. Chartists should again look for a bearish chart pattern or indicator signal to confirm a decline from resistance. A second support and resistance level can also be used to notice potentially overbought and oversold situations. A move above the second resistance level would indicate strength, but it would also indicate an overbought situation that could give way to a pullback. Similarly, a move below the second support would indicate weakness, but could also indicate a short-term oversold condition that could give way to a bounce. Pivot Points offer chartists an approach to determine price direction and then set support and resistance levels. It normally starts with a cross of the Pivot Point. Sometimes the market starts above or below the Pivot Point. Support and resistance come into play after the crossover. Although originally designed for floor traders, the concepts behind Pivot Points can be applied across different time frames. With any indicator, it is valuable to validate Pivot Point signals with other aspects of technical analysis. A bearish reversal pattern for the candlestick could confirm a reversal at other resistances. Oversold RSI could confirm oversold conditions at other support. An uptrend in the MACD could be used to confirm a favorable support test. One final note, sometimes the second or third support/resistance level is not visible on the chart. This is mainly because their levels exceed the price scale on the right. In other words, they are off the chart.

Pivot and SharpCharts

Pivot points can be seen as an “overlay” on SharpCharts Workbench. Default Pivot Points are set as the default setting and the parameter box is empty. Chartists can apply Fibonacci Pivot Points by placing an “F” in the parameter box and Highlight Pivot Points by putting a “D” in the box. It is also possible to display all three simultaneously.

About the Vikingen

With Vikingen’s signals, you have a good chance of finding the winners and selling in time. There are many securities. With Vikingen’s autopilots or tables, you can sort out the most interesting ETFs, stocks, options, warrants, funds, and so on. Vikingen is one of Sweden’s oldest equity research programs.

Click here to see what Vikingen offers: Detailed comparison – Stock market program for those who want to get even richer (vikingen.se)