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Pivot Points Trading – Actionable Strategies for Higher Returns

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Written by Timothy Sykes
Updated 9/7/2023 11 min read

*Written by AI, Edited by Humans

Pivot points trading is a technical indicator system that helps traders identify potential points of reversal in the market. These points offer a relationship between price levels that traders use to make decisions on entry and exit points.

Traders use math to pull high, low, and closing prices from charts to calculate these pivot points. They gauge price action and direction, helping you grab better trading results.

They’re an essential tool in risk mitigation, setting the stage for tighter control over potential loss.

Pivot points are an amazing way to identify potential support and resistance levels. Think of them as indicators that help you understand the market mood. But hold your horses! Knowing what pivot points are is just part one. The meat of the matter is in how you use them to maximize returns while minimizing risk.

Keep reading. I’ll dive deep into actionable strategies, calculations, and commonly asked questions about pivot points. I aim to bring transparency and cut through the jargon — because trading should be accessible to everyone, right? Let’s go!

What Are Pivot Points in Trading?

Alright, let’s get the basics straight. In the trading realm, a pivot point is a technical indicator derived from the high, low, and closing prices during a particular time frame — be it daily, weekly, or monthly. It serves as a way to predict future price movement and serves as a foundation for other indicators like R1, S1, and so on.

If you’re focused on forex or stock markets, pivot points can be your go-to tool. They offer an edge by acting as markers for potential entry and exit points. But here’s the fact: pivot points are just one part of your trading toolkit. Keep that risk tolerance in check and proceed with caution.

Pivot points are a staple in technical analysis, but understanding their meaning is crucial for effective trading. They serve as markers for potential price reversals and can be a game-changer in your trading strategy. Knowing the meaning behind pivot points can help you interpret them more accurately and make better trading decisions. If you’re looking to get a solid grasp on what pivot points really mean, here’s a guide that can clear the fog.

How To Trade Using Pivot Points – Top Trading Strategies

Hold up, before you go pulling up charts on your trading platform. Knowing what pivot points are isn’t enough; you’ve got to master strategies for using them. This part of the article provides various approaches to maximize gains while keeping that ever-important aspect of risk management in check. From support and resistance strategies to candlestick patterns, the content gives you a contrast of methods to suit different risk tolerances and trading times. Keep your account in sync with these strategies, because trading isn’t a one-size-fits-all service.

Candlestick Pivot Point Strategy

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Here’s a killer combination — candlestick patterns and pivot points. When these two collide on your chart, you’re looking at some solid trading opportunities. Candlesticks provide insights into market sentiment, and when you layer that with pivot points, you’ve got a strategy that considers both price action and psychological aspects of the market.

However, just because the stars align doesn’t mean you should dive in. I’ve seen trades go south even with perfect setups. Develop your own trading strategies based on your risk tolerance and comfort level. Trust me, a tailored approach works wonders.

Support and Resistance Pivot Point Strategy

Listen, trading is all about finding value, and the support and resistance pivot point strategy helps you do just that. Support levels give you a heads-up about where the price might bounce back, whereas resistance levels indicate potential ceilings where price action may reverse.

Sound simple? It’s not. This strategy takes time to master, and you shouldn’t take its results as gospel. Cross-reference with other indicators and do your due diligence before taking a position.

How To Calculate Pivot Points

Crunching numbers, anyone? Pivot points and their associated levels (support and resistance) can be calculated using high, low, and close prices from the previous trading session. Formulas vary, but the standard pivot point is often calculated as: (High + Low + Close) / 3. You’ll get different levels like R1, S1, and so on.

No need to do it manually; many trading platforms offer pivot point indicators that do the heavy lifting for you. However, it’s a good idea to understand the math behind it for a clearer grasp of how these points are determined.

Calculating pivot points is one thing, but drawing them on a chart is another skill altogether. Specifically, if you’re interested in Fibonacci retracement levels, knowing how to draw them can be invaluable. This skill can help you identify key levels of support and resistance, enhancing your trading strategy. For a hands-on guide on how to draw Fibonacci retracement levels, check out this detailed tutorial.

It all comes down to charting.

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Interpreting and Using Pivot Points for Predictions

Alright, you’ve calculated your pivot points. Now what? Time to interpret them to predict price action. If the price is above the central pivot, it’s generally considered bullish; below it, bearish. Pivot points offer a range, a framework to predict potential movement.

Remember, market conditions can change rapidly, flipping your analysis upside down. There’s no substitute for real-time data and information. In the constantly shifting forex market, for example, what works today may be obsolete tomorrow.

Mastering Key Levels of a Pivot Point Strategy

Pivot points are more than mere numbers; they establish key levels that form the bedrock of your trading strategy. Resistance, support, and central pivot—all these levels have a complex relationship that can dictate the success or failure of your trades. The charts and examples on this site serve to frame these key levels in real-world contexts, differentiating this service from others. The article dives into mastering these levels, focusing on spotting reversals and leveraging them for potential gains while minimizing loss. Keep flipping through the content to sharpen your edge.

Resistance Level

Resistance levels (R1, R2, etc.) are like invisible ceilings for stock prices. They help traders identify potential exit points. But here’s the kicker: Resistance levels aren’t set in stone. They can break, turning into new support levels.

Support Level

On the flip side, support levels (S1, S2, etc.) act as price floors. They offer clues about where to place your buy orders. Much like resistance levels, though, they’re not airtight. A breached support level can flip and become a new resistance.

Central Pivot

The central pivot is your baseline, the point around which other levels revolve. Think of it as the market’s center of gravity. If prices are hovering above this line, look for bullish signs; below it, be cautious for a potential downtrend.

Floor Traders’ Pivots

Ever heard of floor traders’ pivots? These are levels calculated around the central pivot, offering additional support and resistance points. Use them as supplementary information to refine your trading strategies. They’re especially useful for intraday traders looking for quick, calculated moves.

How To Use Pivot Point in the Intraday Strategy

Intraday traders, this one’s for you. Pivot points shine in short-term trading. Their value comes from the ability to provide dynamic support and resistance levels, giving you multiple entry and exit points throughout the trading session.

However, intraday trading isn’t a walk in the park. Things happen fast. Make sure you pair your pivot point strategies with other indicators to ensure you’re not reading false signals. Stay alert, stay cautious.

While pivot points can help, they’re not the be-all and end-all. It’s essential to have a well-rounded strategy that includes other aspects like understanding market sentiment and key levels. A trader’s cheat sheet can be a handy tool in this regard, offering quick references and tips that can help you make informed decisions. If you’re interested in having a go-to cheat sheet for trading, this guide has got you covered.

How Reliable Are Pivot Points in Trading?

How much should you trust pivot points? These frames are reliable to an extent, but remember, no indicator offers 100% accuracy. Even with meticulous research and flawless formulas, you’re playing with probabilities, not certainties. It’s crucial to maintain a balanced approach and not put all your money into a single strategy.

Don’t ignore the market context either. Pivot points might work differently in volatile markets compared to stable ones. So always keep an eye out for the broader market conditions before placing your trades.

It isn’t a silver bullet for your trading plan — but pivot points trading is one of the many topics you should learn as part of your trading education!

Trading isn’t rocket science. It’s a skill you build and work on like any other. Trading has changed my life, and I think this way of life should be open to more people…

I’ve built my Trading Challenge to pass on the things I had to learn for myself. It’s the kind of community that I wish I had when I was starting out.

We don’t accept everyone. If you’re up for the challenge — I want to hear from you.

Apply to the Trading Challenge here.

Trading is a battlefield. The more knowledge you have, the better prepared you’ll be.

Do you use pivot points in your trading strategy? Let me know in the comments — I love hearing from my readers!

Frequently Asked Questions

What Is a Pivot Breakout?

Pivot breakout is when the price action moves past a pivot point, typically signaling a continuation of the current trend. It’s a significant event for traders, indicating potential momentum. Still, it’s not a standalone sign. Validate it with other indicators before making a move.

What Is a Pivot Bounce?

Pivot bounce occurs when the price reverses direction upon reaching a pivot point. It serves as an early signal that the current trend may be weakening. Again, cross-reference with other indicators to confirm the situation.

What Is a Pivot Point Level?

The pivot point level is the primary value calculated from the high, low, and close of the previous trading session. It serves as the benchmark for other support and resistance levels, giving traders a way to gauge market sentiment.

Can Pivot Points Improve My Trading Performance?

Yes and no. Pivot points can be an invaluable tool, but they’re not a magic bullet. They should be part of a comprehensive trading strategy that considers various indicators and, importantly, your own risk tolerance.

Are Pivot Points Suitable for Any Trading Market?

Pivot points are versatile, fitting into forex, stocks, and even commodities. But remember, the dynamics of these markets differ. Always adjust your strategy accordingly.

How Do You Integrate Pivot Points with Other Trading Indicators?

Combining pivot points with other indicators like moving averages or Fibonacci levels can give you a more nuanced view of the market. It’s all about layering different perspectives to form a comprehensive analysis.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”