What are Pivot Points?
Pivot Points are the price levels that can act as Support & Resistance for the price movements. Pivot Points use previous HIGH, LOW & CLOSE to estimate the future Support & Resistance levels.
A pivot point can also be calculated based on Open, High, Low and Close prices of the previous trading periods, which can act as a significant indicator of the future price movement. It is one of the leading Indicators that signal a potential new market highs or lows.
(R1, R2, R3 = Resistance & S1, S2, S3 = Support; PV = Pivot)
How to use Pivot?
Pivot is the most important level. When the market is above the pivot (i.e. PV) it’s a bullish signal and when the market is below the pivot, it’s bearish.
S1 and R1 offers first target for the intraday trade. In a strong bearish trend when the S1 is broken, S2 offers second target. Similarly, in a bullish market when the R1 is broken, R2 offers second target.
Accordingly, some traders will only buy when the market is above the pivot, and they will only take short trades when the market is below the pivot.
Occasionally, when the market is particularly overbought or oversold (look RSI or momentum indicator) the levels can be used to take reversal trades.
Pivot Points offer a methodology to determine price direction and then set support and resistance levels. It usually 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. Pivot points can be applied across various timeframe.