Crypto-Trading 101: “Pivot Point”-It’s a known reality that chart patterns are a valuable part of the technical analysis – considering the fact that they are more art than science. Millions of traders across the globe use them to identify potential trades that they can then confirm using other forms of technical analysis, not to just maximize their gains but also to increase their personal skill sets to obtain a greater comprehension of the markets. All chart patterns are backed by some indicators, and ‘Pivot Point’ is surely a ‘must know’ indicator.
What is a PIVOT POINT?
It is a technical analysis indicator used to determine the overall trend of the market during different time frames. The pivot point is simply the average of the High, Low and Closing prices from the previous trading day. On a subsequent day, if investors speculate an upward price movement in the stock market, the sentiment is said to be bullish. On the contrary, if the market sentiment is bearish, most investors expect a downward price movement.
Lets Dig-Down a bit more into Pivot Point.
Crypto-Trading 101: “Pivot Point”.Pivot point analysis is more frequently used in conjunction with calculating support and resistance levels. similar to a trend line analysis. In a pivot point analysis, the first support and resistance levels are calculated by using the width of the trading range. Which is between the pivot point and either the high or low prices of the previous day. The second support and resistance levels are calculated by using the full width between the high and low prices of the previous day.
Pivot points are commonly used intraday indicators for trading futures, commodities, and stocks. Unlike moving averages or oscillators, they are static and remain at the same price throughout the day. Data from the prior day’s trading range is used as an input to generate five pivot point levels. The pivot point levels are composed of a pivot point.There are two higher resistance levelare knownwn as R1 and R2, and two lower pivot point supports known as S1 and S2.
Each resistance level is considered a pivot point. Some traders add additional pivots points to expand the range to include upto four additional support and resistance pivot points. Pivot points are often factored into algorithms and high-frequency trading programs. Traders often place stop orders at or near pivot points. Most trading platforms provide these as indicators or studies that can be placed on a chart.
Time Frames to be Considered.
Common industry practice is that traders look at the 4-hour and 1-hour charts. As well as the 30 and 15-minute time frames.
When a Pivot Point is used in conjunction with other indicators like MACD (Moving Average Convergence Divergence) and the RSI (Relative Strength Index), traders are assured that the price action they are looking at is legitimate and significant.
Pivot points are a useful addition to your technical toolbox for their ability to confirm support and resistance levels. As well as for judging the strength and significance of big price moves.
They can help determine when to enter or exit a particular trade. Which is based on the positioning of the price. Even with adding a useful layer of confirmation to your technical analysis when charting the safest route.