What is Pivot Points ?
Pivot Points are a fundamental concept in trading, often referred to as floor pivots. These are crucial markers where traders anticipate support and resistance levels in the market, using them as strategic entry and exit points for their trades. Here's a quick breakdown to help you grasp the concept:
What are Pivot Points?
- Pivot Points: The central marker in the trading day, labeled as PP.
- Resistance Levels: Above the pivot point, labeled as R1, R2, R3, and R4, with R4 being the highest resistance level.
- Support Levels: Below the pivot point, labeled as S1, S2, S3, and S4, with S4 being the lowest support level.
How to Calculate Pivot Points
There are various methods to calculate pivot points, each offering unique advantages. Some of the popular methods include:
- Classic Pivot Points: The traditional method, widely used by traders.
- Camarilla Pivot Points: Focuses on tighter support and resistance levels.
- DeMark Pivot Points: A different approach based on the relationship between the opening and closing prices.
- Woodie Pivot Points: Places more weight on the closing price.
Why Are Pivot Points Important?
Pivot points help traders identify potential reversal points in the market. By understanding where support and resistance are likely to occur, traders can make more informed decisions, enhancing their strategies and potentially increasing their profitability.
Key Takeaways
- Central Pivot Point (PP): The main reference point for the day's trading.
- Resistance Levels (R1-R4): Potential points where the price may face upward resistance.
- Support Levels (S1-S4): Potential points where the price may find downward support.
- Various Calculation Methods: Each method provides a different perspective on market movements.
Making the Most of Pivot Points
Using pivot points effectively can significantly improve your trading strategy. Keep experimenting with different methods and see which one aligns best with your trading style.