What is the pivot point?

Pivots are a technique widely used in financial markets. The objective of the pivot points is to determine areas that will serve as psychological thresholds (support and resistance) for the prices. These pivotal points are generally calculated on a daily basis, on the previous day’s session, which generally has the advantage of providing the trader’s plan for the day.

And since many participants use the pivotal points (and therefore act on these technical levels), prices tend to mark these levels since everyone trades them: self-realization events such as the retracements of Fibonacci for example.

 

Calculation

There are different ways to calculate pivot points. We will describe here the “standard” method, the one most used by traders.

Pivot = (H + L + C) / 3

S1 = (2 x pivot) – H

S2 = Pivot – (H – L)

S3 = L – 2 x (H – pivot)

R1 = (2 x pivot) – B

R2 = Pivot + (H – B)

R3 = H + 2 x (pivot – L)

 

H = High, the highest price of the previous day

L = Low, the lowest price of the previous day

C = Close, previous day’s closing price

S = represents the supports and R the resistance.

 

Trading strategy

First of all, it is useful to specify that this technical framework must absolutely be used with liquid cryptocurrencies for the levels to make sense. As you will have understood, the heart of this technical framework is the pivot point. In a general way, any evolution above the latter will see a rather positive trend and vice versa. The basic technique is to buy when prices move above the daily pivot point and the different levels of resistance will be used to secure profits or set targets. The same technique is used in the selling direction.

When prices go through resistance or support, you can cash in your gain, move up your STOP and expect prices to continue to the next support or resistance.

In swing trading, the pivots are of little interest: it is better to draw up yourself the different technical levels on which the market is interested.

On the other hand, it may be useful to note the pivot points on more UT kids for intra-day trading.

 

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Example of using the pivot points in H4 on BTC: it was possible to do intra-day by playing a few rebounds on the different supports.

A second strategy was to sell the support breaks with the objective of the next supports.

 

Very appreciated by traders especially in intra-day, the pivots allow to obtain simple levels, but all the technical aspect is removed from the trader: the levels are already established. However, making your own plots is an important thing because it allows you to become aware of the interesting prices to trade and increases the accuracy of the graph. This is why I recommend that you draw the resistance and supports you think are important to yourself.

 


Want to learn more? The following articles may be of interest to you

”Bollinger bands”

”Risk Reward & WinRate”

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