Introduction to Pivot Point Trading Strategies

Pivot point trading strategies are prevalent among day traders. They use these strategies to determine critical price levels that are likely to cause remarkable price movements. The pivot point strategy employs calculations to determine the overall market trend over different time frames. The pivot point itself is simply the average of the high, low, and closing prices from the previous trading day. On the subsequent day, trading above the pivot point is thought to indicate ongoing bullish sentiment, while trading below the pivot point indicates bearish sentiment.

Understanding Pivot Points

Pivot points are technical analysis indicators that help determine potential support and resistance levels in the financial market. They are calculated using the high, low, and closing prices of the previous trading period. If the market opens above the pivot point, then the bias for the day is long trades. If the market opens below the pivot point, then the bias for the day is short trades.

Types of Pivot Point Trading Strategies

Pivot Point Bounce Strategy

The pivot point bounce strategy involves entering trades when the price bounces off a pivot point level. Traders can take a long position when the price bounces upwards off a pivot point level, or a short position when the price bounces downwards off a pivot point level.

Pivot Point Breakout Strategy

The pivot point breakout strategy involves entering trades when the price breaks through a pivot point level. Traders can take a long position when the price breaks upwards through a pivot point level, or a short position when the price breaks downwards through a pivot point level.

Pivot Point Trend Strategy

The pivot point trend strategy involves combining pivot points with other trend indicators, such as moving averages. Traders can take a long position when the price is above the pivot point and the moving average, or a short position when the price is below the pivot point and the moving average.

Implementing Pivot Point Trading Strategies

Step 1: Identify Pivot Points

The first step in implementing pivot point trading strategies is to identify the pivot points. This can be done using a pivot point calculator, which takes the high, low, and closing prices of the previous trading period and calculates the pivot point.

Step 2: Determine Market Bias

The next step is to determine the market bias. If the market opens above the pivot point, then the bias for the day is long trades. If the market opens below the pivot point, then the bias for the day is short trades.

Step 3: Enter Trades

The final step is to enter trades based on the pivot point strategy being used. This could involve entering a trade when the price bounces off a pivot point level, breaks through a pivot point level, or when the price is above or below the pivot point and the moving average.

Conclusion

Pivot point trading strategies can be a powerful tool for traders. By identifying key price levels, traders can make informed decisions about when to enter and exit trades. However, like all trading strategies, pivot point strategies should be used in conjunction with other forms of analysis and risk management techniques to increase the chances of trading success.