InvestorQ : We keep getting broker reports daily giving us pivot points. What are pivot points and how are these pivot points actually used in practice to trade?
Bhavik Nehru made post

We keep getting broker reports daily giving us pivot points. What are pivot points and how are these pivot points actually used in practice to trade?

Answer
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Niraj Mehta answered.
1 year ago


If you are an intraday trader or a short term trader, the one thing you really want to do effectively is to enter and exit at the right price and keep your stop loss and profit targets at the right price levels. That is where pivot points come in handy. Daily pivot point indicators, which usually also identify several support and resistance levels in addition to the pivot point, are used by many traders to identify price levels for entering or closing out trades. Pivot point levels often mark significant support or resistance levels or the levels where trading is contained within a range. If trading soars (or plummets) through the daily pivot and all the associated support or resistance levels, this is interpreted by many traders as “breakout” trading that will shift market prices substantially higher or lower, in the direction of the breakout. As the name suggests, the pivots are the important price levels where a trading decision can be taken either on the long side or on the short side.

You may be wondering how are pivot points calculated when they reach you before trading starts. Daily pivot points and their corresponding support and resistance levels are calculated using the previous trading day’s high, low, opening and closing prices. The beauty of the pivot points is that you as a technical trader or chartist can just load these pivot points on your chart and actual trading decisions become a lot simpler from then on. Most of these actions are entirely automated and can be picked up by the machines itself. Hence, there is really no need, as pivot point levels are widely published each trading day and there are pivot point indicators you can just load on a chart that do the calculations for you and reveal pivot levels. Most pivot point indicators show the daily pivot point along with three support levels below the pivot point and three price resistance levels above it. The idea is you can trade both ways above and below these pivot points. What some trader is that they set a long trade and if the pivot short breaks then they double the short. The first short closes the long and the second creates a fresh short. Such strategies require close monitoring and also entail higher transaction and statutory costs. So do such pivot trading keeping these points in mind!