Pivot Points
Last updated
Last updated
Pivot Points are a type of technical analysis indicator that provide a set of horizontal lines on a trading chart that represent potential support and resistance levels. They are calculated based on the high, low, and closing prices of the previous trading period.
Pivot Points are interpreted as follows:
The Pivot Point (P) itself is a potential pivot from bullish (price above P) to bearish (price below P).
The support levels (S1, S2) are potential price levels to enter a long position (buy) if the price shows a bullish reaction at these levels.
The resistance levels (R1, R2) are potential price levels to enter a short position (sell) if the price shows a bearish reaction at these levels.
The Pivot Points indicator support basic general triggers.
PP = Pivot Point
R1 = First resistance
R2 = Second resistance
S1 = First Support
S2 = Second support
The touch band trigger considers the value of the Pivot band at the close of the previous candle (since the current value is not known, as it has not closed yet).
If this option is deactivated, the touch is triggered only if the opening of the candle is in the correct zone (touch up = opening below the trigger price).
With this option activated, even if we start above the trigger price (in the case of a touch up), if during the candle the price dumps below the trigger price and then reverses above, then we trigger at the moment of the internal touch up.
Note : for now, whether it's ON or OFF it only triggers once per candle max (duration of the trigger for the rest of the candle).
Example with this option OFF :
Example with this option ON :
Time Frame: Pivot points can be used across different time frames, but they are particularly popular in high time frames (from 4 hours) for day trading because they are based on the previous day’s prices.
Adjustment for Volatility: In highly volatile markets, consider adjusting your expectations for how far the price might move from the pivot levels. Volatile markets might push the price to R3 or S3 more frequently. You can use our ATR indicator in order to filter the volatility.
Pivots in a Mean Reversion Strategy:
Identifying Ranges: Pivot points are excellent for range-bound markets. You can look for prices to move toward the pivot point levels and reverse. For example, if the price approaches a resistance level (like R1) and shows signs of exhaustion, you might consider a short position with the expectation that the price will revert back to the central pivot point or lower.
Entry and Exit Points: Use pivot levels as entry points for mean reversion trades. If the price hits R1 and starts to reverse, you could enter a short position, aiming for the main pivot (PP) or further down to the S1 level as your exit or take-profit point.
Pivots in a Trend Following Strategy:
Breakouts: Pivot points can also serve to confirm trend continuation, especially when the price breaks through these levels. For instance, if the price breaks above R1, it could signal the continuation of an uptrend, and buying at this breakout could be a viable strategy.
Stop Loss and Take Profit: In a breakout scenario, you could set your stop loss just below the broken pivot point level (e.g., below R1 after a breakout above R1) and set your take-profit at the next resistance level (R2).
