If you’re an online trader, you must know the importance of pivot points. Pivot points are used by traders to identify potential price movements in the market. Pivot points are calculated using the previous day’s high, low, and closing prices. They are the most commonly used tools in technical analysis, and their success rate is quite high.
What are Pivot Points?
A pivot point is a technical analysis indicator that is used to determine potential price movements in the market. These points are defined as critical levels in the market where buying or selling pressure is likely to occur. Pivot points are used to determine entry and exit points in the market, as well as stop loss and take profit levels.
How to Calculate Pivot Points?
Pivot points are calculated using the previous day’s high, low, and closing prices. The Standard Pivot Points (PP) calculation is as follows:
PP = (High + Low + Close) / 3
Resistance Level 1 (R1) = (2 x PP) – Low
Resistance Level 2 (R2) = PP + (High – Low)
Resistance Level 3 (R3) = High + 2(PP – Low)
Support Level 1 (S1) = (2 x PP) – High
Support Level 2 (S2) = PP – (High – Low)
Support Level 3 (S3) = Low – 2(High – PP)
Using Pivot Points for Trading:
Pivot points are most effective when used in combination with other technical indicators and chart patterns. Traders use pivot points to determine the overall trend of the market and to identify levels of support and resistance.
When a market is trading above its pivot point, it is considered to be in an uptrend. Traders look for buying opportunities when the market pulls back to its pivot point or support level. When the market is trading below its pivot point, it is considered to be in a downtrend. Traders look for selling opportunities when the market rallies to its pivot point or resistance level.
Pivot points can also be used to set stop loss and take profit levels. When a trader goes long on a market, they can place their stop loss order below the pivot point or support level. When a trader goes short on a market, they can place their stop loss order above the pivot point or resistance level.
Conclusion:
Pivot points are one of the most commonly used technical analysis tools used by online traders. They are effective in identifying potential price movements in the market and determining entry and exit points. However, it is important to remember that trading in the Indian stock market comes with its own set of risks. It is important for investors to evaluate all the pros and cons before investing in the market.
