Technical Analysis: Pivot Points

Pivot points
are mostly used by day traders. It’s a technical indicator which, through a
calculation of the previous day’s data like the high, the low and the closing
price, displays levels on the chart that could be used as support and
resistance.

Generally,
you have the central pivot point (P) and then the possible resistance and
support levels (R4, R3, R2, R1, S1, S2, S3, S4). Calculations can be applied
also to the previous week or month’s data in which case you would have weekly
and monthly pivot points, but the most used ones are the daily ones.

daily pivot points

Pivot points
can be used for confluence with other technical concepts or indicators to find
possible tradable levels and for stop loss placement. For example, you may want
to go long and see if there’s a good level of support where you can enter. You
find a nice previous swing point level that is in the same area of the pivot
point (P), and on top of that you also have a moving average.

So, you
found this nice confluence zone and the only thing you need to do is to open
your trade and place you stop loss below that area, so if the price starts to
go against you, then your trade setup would be invalidated.

Trade Setup on the confluence zone

As always,
don’t trade based solely on technical analysis but get your trade idea from
fundamental analysis first. Once you have your direction, switch to the chart
and start to structure your trade.

This article
was written by Giuseppe Dellamotta.