How to Day Trade Using Pivot Points?

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Description: When it comes to intraday trading, Pivot Points are an indispensable tool. Developed by Floor traders at a time when Pit trading ruled the roost, the system has stood the test of time and is still being used by many electronic traders throughout the world.

Pivot Points help us in mapping the markets. They pave the pathway for the price to follow. It only takes our good judgment to gauge the situation and pull the trigger. Here we will take a look at how to day trade using Pivot Points.

The very fact that Pivot Points are widely used makes them work! and the most common Pivot Point formula used for day trading are the Standard Pivots or Floor Pivots. The formula for calculating the same are as follows:

Resistance 2 (R2) = P + (High – Low)

Resistance 1 (R1) = (P x 2) – Low

Pivot Point (P) = (High + Low + Close)/3

Support 1 (S1) = (P x 2) – High

Support 2 (S2) = P – (High – Low)

Pivot Point Trading Rules

Opening above Pivot (P): If the stock opens above the Pivot Point (P) (or the Typical Price), it shows inherent strength in the instrument; look for buying opportunities. Wait for the prices to retrace to P. Look for candlestick reversal patterns. If P holds, go ahead and buy the stock with a target set at Resistance 1 (R1).

Opening below Pivot (P): If the stock opens below the Pivot Point (P) (or the Typical Price), it shows inherent weakness in the instrument; look for selling opportunities. Wait for the prices to retrace to P from below. Look for candlestick reversal patterns. If P holds, go ahead and sell the stock with a target set at Support 1 (S1).

Opening above Resistance 1 (R1): If the instrument opens above R1, it represents bullish sentiment. Wait for the prices to retrace to R1 from above. Look for candlestick reversal patterns. If R1 holds, go ahead and buy the stock with a target set at Resistance 2 (R2). However, these setups are very rare.

Opening below Resistance 1 (R1): If the instrument opens below R1, it shows that the instrument is overheated. Wait for the prices to retrace to R1. Look for candlestick reversal patterns. If R1 holds, go ahead and sell the stock with a target set at P.

Opening below Support 1 (S1): If the instrument opens below S1, it represents bearish sentiment. Wait for the prices to retrace to S1 from below. Look for candlestick reversal patterns. If S1 holds, go ahead and sell the stock with a target price set at Support 2 (S2).

Opening above Support 1 (S1): If the instrument opens above S1, it shows that the instrument is oversold. Wait for the prices to retrace to S1. Look for candlestick reversal patterns. If S1 holds, go ahead and buy the stock with a target price set at the Pivot Point (P).

While pivots are useful for day trading, there are other technical tools which can boost up your trading results. To learn more on such technical tools, please attend our Mentorship program.

Follow Abhijit Paul:
Abhijit prefers to define himself with the 3is – investor-trader, instructor and influencer. He has over 14 years of experience in the Indian Financial markets, and is currently, a SEBI Registered Research Analyst and an active trainer. He offers unparalleled services in both training and advisory.

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