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How to Use Pivot Point in Intraday Trading

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Intraday trading involves staying updated with the current market trends and exploring any possibility of making a profit before the trading day ends. Intraday traders use multiple analyses and strategies to identify entry and exit points to generate maximum profits. One of the most efficient intraday trading tools is the pivot point trading strategy while making trading decisions. A pivot point is used extensively in technical analysis that helps traders assess the current price trends. Let us begin by understanding pivot point meaning.

To compute the value of a pivot point, you must identify the previous day's high, low, and closing prices of the specific security. An average of these prices gives the value of the pivot point. If the security trades higher than the last day's pivot point value, it represents a bullish sentiment. Conversely, the bearish sentiment prevails if the security price is less than the pivot value of the previous day.

Traders also use pivot points to calculate support and resistance levels. Intraday traders may typically use seven pivot levels, comprising three resistance and three support levels. These are also primary pivot points displayed in the chart. The different levels of pivot points help traders determine where a security's price would face resistance or support.

Bringing you a complete guide on pivot point trading strategy with a study of which pivot points are best for intraday trading.

Day Trading Using Pivot Points

Intraday traders widely use the pivot trading strategy to assess entry and exit points. Suppose a day trader wants to purchase security; the ideal time would be when the stock follows a bearish trend and drops to support level R1. The support levels are below the basic pivot levels, and traders may place a buy order as the price reaches support level R2. Let us understand two of the most crucial concepts employed by day traders using pivot points.

  1. Pivot Point Bounce - Suppose the security price reaches the pivot point and bounces; it cues the trader to open a trading position. If the stock seems to test the chart from the upper side, following an upward bounce, traders seek to buy those stocks. Conversely, traders may be willing to sell their stocks during a down-ward bounce. Traders who aim short set their stop loss above the pivot point, and those targeting long may set their stop loss below the pivot point.
  2. Pivot Point Breakout - Pivot point breakout is a technique whereby traders use stop-limit orders. Traders may typically open their positions when prices go beyond a pivot price level. Such breaks generally are expected to occur during the morning hours. If the breakout suggests a bearish trend, it may be time to enter into a short trade. Conversely, a long trade is initiated when the breakout suggests a bullish run.

How to enter a trade using pivot points?

Step 1: Open the chart

Once you have calculated the pivot points, open the OHLC chart (Open, High, Low, Close) chart and add pivot points to it.

Step 2: Observe

Look for instances when the price closes at the pivot point. For long trades, as the prices get closer to the pivot point, they will touch new lows. Conversely, look out for prices touching new highs while nearing the pivot point in a short trade.

Step3: Let prices reach the pivot point

Stay on standby as the price reaches the pivot price.

Step4: Enter the trade

You may enter the trade in scenarios such as when the high of the first price bar does not touch a new low has been broken.

What do Pivot Points indicate?

ETraders may use the pivot point trading technique with other trend indicators while trading in stocks, commodities, and futures. Traders can identify stop losses and target prices utilizing this technique. Unlike other indicators, such as oscillators and moving averages , pivot points remain stagnant at the same prices during the day. It, therefore, becomes convenient for traders to plan their trades based on these levels.

How to calculate pivot points?

Traders use the previous day’s data to calculate pivot points that help predict the market trend. There are seven pivot point levels to plot the OHLC pivot level graph. Let us understand how these values are calculated.

Basic Pivot Level (PP) = (High + Low + close) / 3
R1(2*PP) - Low
S1(2*PP) - High
R2(PP - S1) +R1
S2PP - (R1 - S1)
R3(PP - S2) + R2
S3PP - (R2 - S2)

How Significant are Pivot Points?

Pivot points are significant because they provide traders with potential support and resistance levels. These levels help traders decide where to enter and exit trades, making it easier to predict market movements. The static nature of pivot points during the trading day allows traders to strategize effectively without the need for constant recalculations, as required by other indicators. This reliability makes pivot points a vital tool for intraday trading.

Why is Pivot Point Trading Important?

Pivot point trading is important because it offers a systematic approach to identifying key levels in the market that can influence price action. By using pivot points, traders can better predict potential market reversals, set stop-loss levels, and establish profit targets. This method enhances decision-making by providing clear, predefined points of reference, reducing the emotional element of trading, and fostering a disciplined trading approach.

Pivot point trading strategies

Pivot point trading strategies are essential for traders looking to navigate the intraday market efficiently. By understanding the pivot point trading strategy, traders can identify key levels of support and resistance, which are critical for making informed trading decisions. The pivot meaning in share market revolves around using the previous day's high, low, and close prices to determine these levels, providing a reliable way to gauge market sentiment. This approach helps traders anticipate price reversals or continuations, making it a popular choice in day trading.

One effective pivot point strategy involves waiting for the price to bounce off a pivot level before entering a trade, which allows for a more precise entry point. Another strategy is the pivot point breakout, where traders enter positions once the price moves beyond a pivot level, indicating strong momentum. Understanding which pivot points are best for intraday helps traders tailor their approach, whether they're seeking short-term gains or more significant moves. Overall, pivot point trading is a powerful technique, offering traders structured levels to guide their buying and selling decisions in volatile markets.

Candlestick Pivot Point Strategy

The candlestick pivot point strategy leverages candlestick patterns combined with pivot point levels to make well-informed trading decisions. This pivot point trading strategy is particularly effective in identifying price reversals, as candlestick patterns can provide insights into market sentiment. When combined with pivot points, traders can use this approach to determine potential entry and exit points, especially during intraday sessions. This strategy's effectiveness hinges on the pivot point trading levels that highlight where prices might bounce or break, indicating a shift in market direction.

In the candlestick pivot point strategy, traders look for patterns such as doji, engulfing, or hammer formations at pivot levels. These patterns provide an added confirmation that a price reversal might occur, helping traders decide whether to go long or short. By understanding the pivot meaning in share market and applying it within this context, traders can improve their accuracy in timing trades. The combination of candlesticks and pivot points provides a structured approach to identifying market trends and potential price reversals with confidence.

Resistance & Support Pivot Point Strategy

The resistance and support pivot point strategy focuses on the interaction between price levels and pivot points to identify ideal trading positions. In this pivot point trading strategy, traders look for price movements around support and resistance levels, often labeled as S1, S2, R1, and R2. These levels help determine potential reversal points or confirm ongoing trends, making it easier for traders to establish their positions. Using this method allows intraday traders to answer the question of which pivot points are best for intraday, as these levels indicate critical thresholds for price movement.

Traders employing the resistance and support pivot point strategy often observe how the price interacts with these levels before making a move. For instance, a price bounce at a support level suggests buying opportunities, whereas a rejection at a resistance level could signal a short trade. This pivot point strategy adds structure to trading by providing clear levels to watch, helping traders avoid impulsive decisions. Ultimately, understanding and utilizing these support and resistance levels in pivot point trading can improve entry and exit timing in volatile markets.

Conclusion

Understanding and using pivot points in intraday trading can significantly enhance a trader's ability to predict market movements and make informed decisions. By incorporating pivot points into your trading strategy, you can identify critical support and resistance levels, optimize entry and exit points, and improve overall trading performance. As with any trading tool, it is essential to practice and refine your approach to maximize the benefits of pivot point trading.

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Frequently Asked Questions

What is the pivot meaning in the share market?

Answer Field

The pivot meaning in the share market refers to a technical analysis indicator used to determine the overall trend of the market over different time frames.

Is pivot a good indicator?

Answer Field

Generally, pivot points are considered a good indicator as they provide potential support and resistance levels, aiding in predicting market movements.

When to buy with pivot point?

Answer Field

You may consider buying with a pivot point when the price reaches or bounces from a support level, indicating a potential upward movement.

Which pivot points are best for intraday?

Answer Field

The best pivot points for intraday trading typically include the central pivot point along with the first support (S1) and resistance (R1) levels.

How do you analyze pivot points?

Answer Field

Analyzing pivot points involves observing the price's interaction with pivot levels to identify potential support and resistance areas, aiding in trading decisions.

How do you calculate pivot points in trading?

Answer Field

Pivot points in trading are calculated using the previous day’s high, low, and closing prices with the formula:

PP = (High + Low + Close) / 3.

Which pivot points are best for intraday?

Answer Field

The best pivot points for intraday trading are the primary levels, including S1, S2 for support and R1, R2 for resistance. These levels help identify ideal entry and exit points in a pivot point trading strategy. By understanding which pivot points are best for intraday, traders can make more accurate predictions on price movements within a single trading day.

What are the key benefits of using pivot points in pivot point trading?

Answer Field

Pivot points in pivot point trading provide structure and guidance, helping traders determine support and resistance levels. One major benefit is that they stay fixed throughout the day, unlike other indicators, making them reliable for planning trades. In this way, pivot point trading helps traders make informed decisions, particularly in fast-moving markets like intraday trading.

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