Pivot Point Trading Strategies
In this article, I will discuss Pivot Point Trading Strategies, i.e., How to Day and Swing Trade Using Pivot Points. At the end of this article, you will learn the standard pivot point trading strategy.
- Where to enter the trade
- When to exit the trade
- How to place your stop
- Target of trade
What are Pivot Points in Trading?
Pivots points, also known as ‘Classical Pivots or standard pivots. The pivot points are calculated according to past price data of high, low, and close and project the future levels of support and resistance.
How to Calculate Pivot Point?
The Pivot Point (STANDARD) is calculated in a simple way.
R2 = PP + (high-low)
S2 = PP – (High – Low)
R3 = High + 2(PP-low)
S3 = Low – 2(High – PP)
How to Add Pivot Points in Charts?
We recommend that you calculate these pivot points yourself; you can use pivot points provided by many online platforms and freely available in all trading terminals, including trading view.
How to Use Pivot Point in Intraday Trading?
The pivot points are calculated according to the previous day’s high, low, and close. it does not change and fix in all time frame
- Pivot Points can be used to determine trend-directional
- Pivots project price level where the price will likely face support or resistance.
- As pivots are based on past data. It does not change and fix in all time frames. It means it is not a lagging indicator.
- Pivots are used by all trade, including the big institution
- Pivots point as dynamic support and resistance
Pivot Points can be used to determine trend-directional
Filter trades in the direction of the trend. Avoiding trading against the trend
- Uptrend (HIGHER PIVOT)
- Downtrend (LOWER PIVOT)
Pivot Point Trading Strategies
Pivots project price level where the price is likely to face support or resistance.
Pivot POINTS can give entries when trading in the direction of the trend. The chart ABOVE a downtrend, showing how to price pullback towards the pivot (P AND R1) in a downtrend before continuing down. Traders can enter shortly after the price has reached the pivot points.
As pivots are based on past data, It does not change and fix in all time frame. Pivots point as dynamic support and resistance FOR different traders
- Investors – Yearly Levels
- Position Traders – Monthly Levels
- Swing Traders – Weekly Levels
- Day Traders – Intraday Levels
Pivot Point trading strategy
Pivot Point Breakout Trading
Entry: For standard pivot point breakout trade, you must open a position when the price breaks through a pivot point level with the trend. If the trend is bearish and the breakout is bearish, you must initiate a short trade. If the trend is bullish and the breakout is bullish, then the trade should initiate a long trade.
Stop Loss: A good place for your stop would be the last swing low/high, located somewhere before the breakout.
Target: You should trail and hold your pivot point breakout trade until the price reaches the next pivot level. This means if u trade a bullish R1 breakout, then trail and hold until R2 reach or trail stop loss hit
Pivot Point Rejection Trading
ENTRY: If the stock is reaching a pivot line from the upper side and rejection upwards, then you have to buy that stock. Conversely, if the price is reaching a pivot line from the lower side and rejection bounces downwards, then you should initiate a short trade. For rejection, the entry signal looks for any reversal candlestick pattern for the entry.
STOP LOSS: A good place for your stop would be the last swing, low/high, located somewhere before the rejection. the stop loss for this trade should be located above the pivot level if you are short and below if you are long.
TARGET: To be clear, pivot point bounce trades should be held until the price action reaches the next level on the chart. You should trail and hold your pivot point rejection trade until the price reaches the next pivot level. This means if u trade bullish R1 rejection, then trail and hold until P reach or trail stop loss hit
TIME FRAME 5 MINUTES FOR INTRADAY TRADING
As u can see, price testing R2 WITH WEEK MOMENTUM AND GOT REJECTED FROM R2. TARGET R1 REACH.
Pivot Point Trading Strategies Summary:
Pivot points are a popular technical analysis tool used by traders to determine potential support and resistance levels, as well as to gauge the overall market trend. The pivot point itself is the primary support/resistance. This means the price is expected to see the most movement around this point. The pivot point and associated support and resistance levels are potential turning points for the price direction.
Here are several pivot point trading strategies:
Basic Pivot Point Strategy:
This is a straightforward strategy that involves using the daily pivot points to guide your trading:
- Buying: If the price is above the pivot point, this is considered bullish, and you may look for buying opportunities.
- Selling: If the price is below the pivot point, this is considered bearish, and you may look for selling opportunities.
- Stop Losses: Place stop losses below the pivot point for long positions and above the pivot point for short positions.
Pivot Point Breakout Strategy:
This strategy involves entering the market when the price breaks through a pivot point level, which could indicate a strong move in the direction of the breakout:
- Buy Breakouts: Enter a long position when the price breaks above one of the resistance levels (R1, R2, R3).
- Sell Breakouts: Enter a short position when the price breaks below one of the support levels (S1, S2, S3).
- Volume Confirmation: Look for increased volume during the breakout as a confirmation of the move.
Pivot Point Bounce Strategy:
The pivot point bounce strategy involves entering the market when the price bounces off a pivot point level, using it as support or resistance:
- Buy on Support Bounce: If the price approaches a pivot point support level and bounces upward, enter a long position.
- Sell on Resistance Bounce: If the price approaches a pivot point resistance level and bounces downward, enter a short position.
Pivot Point Confluence Strategy:
This strategy uses additional indicators or technical tools to confirm pivot point signals:
- Indicator Confluence: Combine pivot points with other indicators like moving averages, MACD, RSI, etc., to find areas where signals from different tools converge.
- Price Action: Use price action signals like candlestick patterns at pivot points to confirm entry and exit points.
Pivot Point Reversal Strategy:
This is for traders looking for potential price reversals at pivot point levels:
- Reversal at Resistance: If the price fails to break above a resistance pivot point level and shows reversal patterns, consider a short position.
- Reversal at Support: If the price fails to break below a support pivot point level and shows reversal patterns, consider a long position.
Using pivot points across different time frames can give a broader view of the market:
- Longer Time Frames: Weekly and monthly pivot points can provide insight into larger market trends.
- Shorter Time Frames: Hourly pivot points can provide insight into intraday market movements.
Pivot Point Strategy Tips:
- Backtest: Always backtest pivot point strategies on historical data to see how they might have performed.
- Risk Management: Use proper risk management, including stop-loss orders and position sizing based on risk tolerance.
- Market Context: Be aware of the broader market context and news events that might impact the effectiveness of pivot points on a given day.
- Combine Strategies: Consider combining pivot point strategies with other forms of analysis for more robust trading signals.
Remember, no trading strategy is foolproof. Pivot points are just one method for providing structure to the market and identifying potential areas of interest for traders. They should be used with other tools and a clear risk management strategy.
In the next article, I will discuss the Central Pivot Range Trading Strategy. Here, in this article, I try to explain Pivot Point Trading Strategies. I hope you enjoy this Pivot Point Trading Strategies article. Please join my Telegram Channel and YouTube Channel as well as my Facebook Group to learn more and clear your doubts.
About the Author: Pranaya Rout
Pranaya Rout has published more than 3,000 articles in his 11-year career. Pranaya Rout has very good experience with Microsoft Technologies, Including C#, VB, ASP.NET MVC, ASP.NET Web API, EF, EF Core, ADO.NET, LINQ, SQL Server, MYSQL, Oracle, ASP.NET Core, Cloud Computing, Microservices, Design Patterns and still learning new technologies.