Pathshala: Pivot Points

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<span style="font-size: x-large;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><b>PIVOT POINT </b></span></span><span style="mso-bidi-font-family: "Times New Roman";"></span></h2>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="mso-bidi-font-family: "Times New Roman";">Pivot
Point is a technical indicators, pivot point is a method of calculating the
support and resistance for a particular index/scrip for a particular time frame
like daily, weekly or monthly basis. The pivot point changes at the end of
every day for the next day depending on open, low, high & close values. </span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="mso-bidi-font-family: "Times New Roman";">There
are mainly 5 types of Pivot Points: </span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b><span style="color: black; mso-bidi-font-family: "Times New Roman";">1. Floor Pivot Points</span></b></span></h4>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b><span style="color: black; mso-bidi-font-family: "Times New Roman";">4. Camarilla Pivot Point</span></b></span></h4>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b><span style="font-size: 12.0pt;">5. Fibonacci
Pivot Point</span></b></span><span style="font-family: "arial" , "helvetica" , sans-serif;"> </span></h4>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="mso-bidi-font-family: "Times New Roman";">Professional
traders and market makers use pivot points to identify potential support and
resistance levels. Simply put, a pivot point and its support/resistance levels
are areas at which the direction of price movement can possibly change. </span></span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="mso-bidi-font-family: "Times New Roman";">The
reason why pivot points are so enticing? It's because they are <b>OBJECTIVE</b>.
Unlike some of the other indicators that we've taught you about already,
there's no discretion involved. </span></span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="mso-bidi-font-family: "Times New Roman";">In many ways, pivot points are very similar to
Fibonacci levels. Because so many people are looking at those levels, they
almost become self-fulfilling. <span style="mso-spacerun: yes;"> </span> </span></span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="mso-bidi-font-family: "Times New Roman";">The major
difference between the two is that with Fibonacci, there is still some
subjectivity involved in picking Swing Highs and Swing Lows. With pivot points,
traders typically use the same method for calculating them. </span></span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="mso-bidi-font-family: "Times New Roman";">Many traders keep
an eye on these levels and you should too. Pivot points are especially useful
to short-term traders who are looking to take advantage of small price
movements. Just like normal support and resistance levels, traders can choose to
trade the bounce or the break of these levels. </span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b><span style="mso-bidi-font-family: "Times New Roman";">Range-bound
traders use pivot points to identify reversal points.</span></b><span style="mso-bidi-font-family: "Times New Roman";"> They see pivot points as areas
where they can place their buy or sell orders.</span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b><span style="mso-bidi-font-family: "Times New Roman";">Breakout
traders use pivot points to recognize key levels that need to be broken</span></b><span style="mso-bidi-font-family: "Times New Roman";"> for a move to be classified as
a real deal breakout. </span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="mso-bidi-font-family: "Times New Roman";">Here
is an example of pivot points plotted on a 1-hour EUR/USD chart:</span></span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;">As you can see here, horizontal support and resistance levels are placed on
your chart. And look - they're marked out nicely for you! How convenient is
that?! Here's quick rundown on what those acronyms mean: </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b><span style="mso-bidi-font-family: "Times New Roman";">PP</span></b><span style="mso-bidi-font-family: "Times New Roman";"> stands for Pivot Point. </span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b><span style="mso-bidi-font-family: "Times New Roman";">S</span></b><span style="mso-bidi-font-family: "Times New Roman";"> stands for Support. </span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b><span style="mso-bidi-font-family: "Times New Roman";">R</span></b><span style="mso-bidi-font-family: "Times New Roman";"> stands for Resistance. </span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="mso-bidi-font-family: "Times New Roman";">But don't get too caught up in
thinking "S1 has to be support" or "R1 has to be
resistance." We'll explain why later.</span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="mso-bidi-font-family: "Times New Roman";">In the following lessons, you
will learn how to calculate pivot points, the different types of pivot points
and most importantly, how you can add pivot points to your trading toolbox! </span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">How to Calculate Pivot Points</span></h1>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">The first thing you're going to learn is how to calculate pivot point
levels. </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">The pivot point and associated support and resistance levels are calculated
by using the last trading session's open, high, low, and close. Since forex is
a 24-hour market, most traders use the New
  York closing time of 4:00pm EST as the previous day's
close.</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">The calculation for a pivot point is shown below:</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Pivot point (PP)</b> = (High + Low + Close) / 3</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Support and resistance levels are then calculated off the pivot point like
so:</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">First level support and resistance:</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b>First resistance (R1)</b> = (2 x PP) - Low</span>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><b>First support (S1)</b> = (2 x PP) - High</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Second level of support and resistance:</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Second resistance (R2)</b> = PP + (High - Low)</span>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Second support (S2)</b> = PP - (High - Low)</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Third level of support and resistance: </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Third resistance (R3) </b>= High + 2(PP - Low)</span>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Third support (S3)</b> = Low - 2(High - PP)</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Keep in mind that some charting software plot intermediate levels or
mid-point levels. These are basically mini levels between the main pivot point
and support and resistance levels. </span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;">If you hated algebra, have no fear because you don't have to perform these
calculations yourself. Most charting software’s will automatically do this for
you. Just make sure you configure your settings so that it uses the correct
closing time and price. Also we can use the calculator application. The
calculator can come in handy, especially if you want to do a little back
testing to see how pivot point levels have held up in the past. Remember, one
of the advantages of using pivot points is that it is objective, so it's very
easy to test how price reacted to them. Next up, we'll teach you the various
ways in which you can incorporate pivot points into your trading strategy. </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Range Trading with Pivot Points</span></h1>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">The simplest way to use pivot point levels is to use them just like 
your regular support and resistance levels. Just like good ole support 
and resistance, price will test the levels repeatedly. The more times a currency pair touches a pivot level then reverses, 
the stronger the level is. Actually, "pivoting" simply means reaching a 
support or resistance level and then reversing. If you see that a pivot level is holding, this could give you some good trading opportunities. If price is nearing the upper resistance level, you could sell the pair and place a stop just above the resistance. If price was nearing a support level, you would buy and put your stop just below the level.

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<span style="font-family: "arial" , "helvetica" , sans-serif;">See?  Just like you're regular support and resistance! Nothing hard about that!</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Let's take a look at an example so you can visualize this. Here's a 15-minute chart of GBP/USD. </span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;">In the chart above, you see that price is testing the S1 support 
level. If you think it will hold, what you can do is buy at market and 
then put a stop loss order past the next support level. If you're conservative, you can set a wide stop just below S2. If 
price reaches past S2, chances are it won't be coming back up, as both 
S1 and S2 could become resistance levels. If you're a little more aggressive and confident that support at S1 would hold, you can set your stop just below S1. As for your take profit points, you could target PP or R1, which 
could also provide some sort of resistance. Let's see what happened if 
you bought at market. </span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Looks like S1 held as support! What's more, if you had 
targeted PP as your take profit point, you would have hit your PT!</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">Woohoo! Ice cream and pizza for you!</span> <span style="font-family: "arial" , "helvetica" , sans-serif;">Of course, it ain't always that simple.  You shouldn't rely only on 
the pivot point levels. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">You should note whether pivot point levels line 
up with former support and resistance levels. You can also incorporate candlestick analysis and other types of indicators to help give you more confirmation. For example, if you see that a doji has formed over S1, or that the 
stochastic is indicating oversold conditions, then the odds are higher 
that S1 will hold as support. Also, most of the time, trading normally takes place between the 
first support and resistance levels. Occasionally, price will test the 
second levels and every once in a while, the third levels will be 
tested.</span><span style="font-family: "arial" , "helvetica" , sans-serif;"> </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">Lastly, you should also fully understand that sometimes, price will 
just break through all the levels like how Roger Federer breezes through
 the competition in Wimbledon. What will you do when that happens? Continue to hold onto your trade 
and be a sucker and watch your account dwindle away? Or will you take 
advantage and get back some pips? In the next lesson, we'll teach you how to take advantage when these levels break down. </span></div>
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<h1>
Playing the Breaks with Pivot Points</h1>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Just like your normal support and resistance levels, pivot point levels won't hold forever. Using pivot points for range trading will work, but not all the time.
 In those times that these levels fail to hold, you should have some 
tools ready to take advantage of the situation! As we showed you earlier, there are two main ways to trade breakouts: the aggressive way or the safe way. Either method will work just fine. Just always remember that if you 
take the safe way, which means waiting for a retest of support or 
resistance, you may miss out on the initial move.

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<span style="font-family: "arial" , "helvetica" , sans-serif;">Let's take a look at a chart to see potential breakout trades using pivot points. Below is a 15-minute chart of EUR/USD. </span><br />
<br />
<div class="separator" style="clear: both; text-align: left;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG-7ttrXvc-fcKVsPVY9RwlpbNpScEFFmF_x3WmMw5O3UkRy7al5SWaZ1Jv373VIkKZ30i2Q1dvnDn6lby6VYRwqHwdRA2fjzyaNd8xS3YQJFLCfc8yw31KBhjhTnmB3RM5OUvDgyzCX8/s1600/Potential+Breakouts1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="525" data-original-width="925" height="227" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG-7ttrXvc-fcKVsPVY9RwlpbNpScEFFmF_x3WmMw5O3UkRy7al5SWaZ1Jv373VIkKZ30i2Q1dvnDn6lby6VYRwqHwdRA2fjzyaNd8xS3YQJFLCfc8yw31KBhjhTnmB3RM5OUvDgyzCX8/s400/Potential+Breakouts1.png" width="400" /></a></div>
</div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span></div>
<div style="text-align: justify;">
<br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">Here we see EUR/USD made a strong rally throughout the day. We see 
that EUR/USD opened by gapping up above the pivot point. Price made a 
strong move up, before pausing slightly at R1. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">Eventually, resistance broke and the pair jumped up by price! If you had taken the aggressive method, you would have caught the 
initial move and been celebrating like you just won the Super Bowl. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">On the other hand, if you had taken the safe way and waited for a 
retest, you would have been one sad little trader. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">The price did not 
retest after breaking R1. In fact, the same thing happened for both R1 
and R2! Notice how EUR/USD bulls tried to make a run for R3 as well. However, if you had taken the aggressive method, you would have 
gotten caught up in a fake out as the price failed to sustain the 
initial break. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">If your stop was too tight, then you would have gotten 
stopped out. Later on though, you'll see that the price eventually broke through. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">Notice how there was also a retest of the broken resistance line. Also, observe how when the pair reversed later in the day and broke 
down past R3. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">There was an opportunity to take a short on the retest of 
resistance-turned support - turned resistance (read that again if you 
have to!). Remember that, when support levels break, they usually turn into resistance levels. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">This concept of "<b>role reversal</b>" also applies for 
broken resistance levels which become support levels. These would have 
been good opportunities to take the "I think I'll play it safe" method. </span></div>
<div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: justify; text-decoration: none;">
<h2>
Placing stops and targets with breakouts</h2>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">One of the difficult things about taking breakout trades is picking a
 spot to place your stop. Unlike range trading where you are looking for
 breaks of pivot point support and resistance levels, you are looking 
for strong fast moves. Once a level breaks, in theory, that level will likely become "support-turned-resistance" or "resistance-turned-support." If you were going long and price broke R1, you could place your stop just below R1. Let's go back to that EUR/USD chart to see where you could place your stops.

</span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">As for setting targets, you would typically aim for the next pivot 
point support or resistance level as your take profit point. It's very 
rare that price will break past all the pivot point levels, unless a big
 economic event or surprise news comes out. </span></div>
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><br />
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Let's go back to that EUR/USD chart to see where you would put those stops and take profit points. </span><br />
<br />
<div class="separator" style="clear: both; text-align: left;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibipcl9fHhqg5HCpo2VmO81gA9n2xdERQOLi3vOHXOynaG4_FTsDyJ9KPfp9pQVgB60iOJfGHRsBeohqdFgkiGH61xRL1pi2ar-d4TeyFWcB6ggeDgI9RoRXW8sUkc4x8d-fk3PwqqMHM/s1600/Potential+Breakouts2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="525" data-original-width="925" height="226" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibipcl9fHhqg5HCpo2VmO81gA9n2xdERQOLi3vOHXOynaG4_FTsDyJ9KPfp9pQVgB60iOJfGHRsBeohqdFgkiGH61xRL1pi2ar-d4TeyFWcB6ggeDgI9RoRXW8sUkc4x8d-fk3PwqqMHM/s400/Potential+Breakouts2.png" width="400" /></a></div>
</div>
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><br />
<div style="text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"></span></div>
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><br />
<div style="text-align: justify;">
<br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">In this example, once you saw price break R1, you would have set your
 stop just below R1. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">If you believed that price would continue to rise, 
you could keep your position and move your stop manually to see if move 
would continue. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">You'd have to watch carefully and adjust accordingly. 
You'll learn more about this in later lessons. As with any method or indicator, you have to be aware of the risks with taking breakout trades. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">First of all, you have no idea whether or not the move will continue. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">You might enter thinking that price will continue to rise, but instead 
you catch a top or bottom, which means that you've been faked out! Second, you won't be sure if it's a true breakout, or just wild moves
 caused by the release of important news. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">Spikes in volatility are a 
common occurrence during news events, so be sure to keep up with 
breaking news and be aware of what's on the market calendar for the day 
or week. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">Lastly, just like in range trading, it would be best to pop on other 
key support and resistance levels. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">You might be thinking that R1 is 
breaking, but you failed to notice a strong resistance level just past 
R1. Price may break past R1, test the resistance and just fall back 
down. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">You should make use of your knowledge of support and resistance, 
candlestick patterns, and momentum indicators to help you give stronger 
signals as to whether the break is for real or not. </span></div>
<h2>
<span style="font-family: "arial" , "helvetica" , sans-serif;">Using Pivot Points to Determine Market Sentiment </span></h2>
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><span style="font-family: "arial" , "helvetica" , sans-serif;">There is one other way to incorporate pivot points into your trading strategy, and that's to use it to gauge <b>market sentiment</b>. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><span style="font-family: "arial" , "helvetica" , sans-serif;">What this means is that you can tell whether traders are more 
inclined to buy or sell the pair. All you would need to do is to keep an
 eye on the pivot point. You could treat it like the 50 yard line of a 
football field. Depending on which side the ball (in this case, price) 
is on, you can tell whether buyers or sellers have the upper hand. If the price breaks through the pivot point to the top, it's a sign 
that traders are bullish on the pair and you should start buying the 
pair like it's a Krispy Kreme donut. Here's an example of what happened 
when the price stayed above the pivot point. </span><br />
<br />
<div class="separator" style="clear: both; text-align: left;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh7nN4eU1ZsD_a9fBvkXof94GMEOkuaeqboq_0tSGVd46p7upvUEtMkAhutOw1zpfHVIK3Z0fWA3AlfvyQCUoqtyPVsN741TyuMRDIzbb_8-n-taiRFtDGBPMPznAA5fIfnQ-i_AKZzFpo/s1600/grade8-pivot-points-bullish.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="298" data-original-width="525" height="226" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh7nN4eU1ZsD_a9fBvkXof94GMEOkuaeqboq_0tSGVd46p7upvUEtMkAhutOw1zpfHVIK3Z0fWA3AlfvyQCUoqtyPVsN741TyuMRDIzbb_8-n-taiRFtDGBPMPznAA5fIfnQ-i_AKZzFpo/s400/grade8-pivot-points-bullish.png" width="400" /></a></div>
<br />
<div style="text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"></span></div>
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><span style="font-family: "arial" , "helvetica" , sans-serif;">In this example, we see that EUR/USD gapped up and opened above the 
pivot point. The price then rose higher and higher, breaking through all
 the resistance levels. Now, if price breaks through the pivot point to the bottom, then you 
should start selling the pair like it's Enron stock. The price being 
below the pivot point would signal bearish sentiment and that sellers 
could have the upper hand for the trading session.

</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">Let's take a look at a chart of GBP/USD.</span><br />
<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEieoK-NCc7LkaJam65BtqUzNhUPugK4suDz3zce9O6B8jhDWTCF5uFQahLfNxEInxMkuEFqMEoX-nvYKwAksXGs-2Z2XyoaOYQ3P08VrIWEI6jgi2duDKZngDxVDSjNJpFTtLc3SENVVYo/s1600/grade8-pivot-points-bearish.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="298" data-original-width="525" height="226" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEieoK-NCc7LkaJam65BtqUzNhUPugK4suDz3zce9O6B8jhDWTCF5uFQahLfNxEInxMkuEFqMEoX-nvYKwAksXGs-2Z2XyoaOYQ3P08VrIWEI6jgi2duDKZngDxVDSjNJpFTtLc3SENVVYo/s400/grade8-pivot-points-bearish.png" width="400" /></a></div>
<br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><br />
<div style="text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"></span></div>
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><br />
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">In the chart above, we see that the price tested the pivot point, 
which held as a resistance level. Next thing you know, the pair keeps 
going lower and lower. If you had taken the clue that price remained 
below the pivot point and sold the pair, you would have made some nice 
moolah. GBP/USD dropped almost 300 pips! Of course, it doesn't always work out like this. There are times when
 you think that traders are bearish on a pair, only to see that the pair
 reverses and breaks through to the top! </span><br />
<br />
<div class="separator" style="clear: both; text-align: left;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNjMnR2BZkinURh7FPZXYy1LShRjgs8EUV9AQl7Fn0b_HJ3PMzb2G3wliAbYuNxyMQZbOge0tEMZmLXZ6dZTzNKGWMMP1jaBaDMAzaNRdS60-cFP3CYj6r4H1HgUKsSR8Txk4dNMnwduY/s1600/grade8-pivot-points-undecided.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="298" data-original-width="525" height="226" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNjMnR2BZkinURh7FPZXYy1LShRjgs8EUV9AQl7Fn0b_HJ3PMzb2G3wliAbYuNxyMQZbOge0tEMZmLXZ6dZTzNKGWMMP1jaBaDMAzaNRdS60-cFP3CYj6r4H1HgUKsSR8Txk4dNMnwduY/s400/grade8-pivot-points-undecided.png" width="400" /></a></div>
</div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span></div>
<div style="text-align: justify;">
<br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">In this example, if you saw price breaking lower from the pivot point
 and sold, you would have had a sad, sad day. Later on during the 
European session, EUR/USD popped higher, eventually breaking through the
 pivot point. What's more, the pair stayed above the pivot point, 
showing how buyers were rockin' away. The lesson here? Traders are fickle! How traders feel about a currency can shift dramatically day to day, 
even session to session. This is why you cannot simply buy when price is
 above the pivot point or sell when it is below it. Instead, if you choose to use pivot point analysis in this way, you 
should combine it with other indicators to help you determine overall 
market sentiment. </span></div>
<div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">
<h1>
<span style="font-family: "arial" , "helvetica" , sans-serif;">Other Pivot Point Calculation Methods</span></h1>
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><span style="font-family: "arial" , "helvetica" , sans-serif;">While we suggest that you stick to the standard method of calculating
 pivot points, you should know that there are other ways to calculate 
for pivot points. In this lesson, we will talk about these other 
methods, as well as give you the formulas on how to calculate for these 
levels.</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><br />
<h2 style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"> <b>Tom DeMark's pivot points</b> </span></h2>
<div style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">This
 are not pivot points exactly, but predicted low and high of the period.
 To calculate DeMark's pivot points follow these rules:</span></div>
<div style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br />If Close < Open(current) Then X = H + 2 X L + C</span></div>
<div style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">If Close > Opencurrent Then X = 2 X H + L + C</span></div>
<div style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">If Close = Opencurrent Then X = H + L + 2 X C</span></div>
<div style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">New High = X / 2 - L; New Low = X / 2 - H </span><br />
<div class="separator" style="clear: both; text-align: left;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh9iJAP7XL-eNDHHa8eU-CFhx4z5VjZ9k5dYpz8BNcna5vH_GH6Ge2Q0tb-HdG7Qx7PMBpHkSRctO64wZRkxIDBtc33kHzjZnvRyT-T3ySbciaGZRSFgfPIX2ZZW49UDauUWDQ-LlUt0vc/s1600/EURUSD113007.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="490" data-original-width="800" height="245" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh9iJAP7XL-eNDHHa8eU-CFhx4z5VjZ9k5dYpz8BNcna5vH_GH6Ge2Q0tb-HdG7Qx7PMBpHkSRctO64wZRkxIDBtc33kHzjZnvRyT-T3ySbciaGZRSFgfPIX2ZZW49UDauUWDQ-LlUt0vc/s400/EURUSD113007.jpg" width="400" /></a></div>
</div>
<h2>
<span style="font-family: "arial" , "helvetica" , sans-serif;">Woodie Pivot Point</span></h2>
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><span style="font-family: "arial" , "helvetica" , sans-serif;">R2 = PP + High - Low<br />
R1 = (2 X PP) - Low<br />
PP = (H + L + 2C) / 4<br />
S1 = (2 X PP) - High<br />
S2 = PP - High + Low</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><span style="font-family: "arial" , "helvetica" , sans-serif;"><i>C - Closing Price, H - High, L - Low</i></span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><span style="font-family: "arial" , "helvetica" , sans-serif;">In the formulas above, you'll notice that the pivot point calculation is very different from the standard method. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><span style="font-family: "arial" , "helvetica" , sans-serif;">Also, in order the calculate for the corresponding support and 
resistance levels, you would use the difference between the previous 
day's high and low, otherwise known as the range. Here's a chart example of the Woodie pivot point calculation applied 
on EURUSD. The Woodie pivot point, support levels, and resistance levels
 are the solid lines while the dotted lines represent the levels 
calculated through the standard method.

</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"></span><br />
<div class="separator" style="clear: both; text-align: left;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyG8xRSRHmzyJ6MoUMooYSDDgn6ag_MQn8dlMDrgbhC8pgh8CU1rwekrcxJVeOMKR1PUZNxPLuA-0DF8BvNmfk4VIc6WQrWIxF4oMvg5IFfhjq-BhilSvLltwGpoQQn4dd8MS4o1xlG-c/s1600/grade8-woodie-pivot-points.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="620" data-original-width="1020" height="242" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyG8xRSRHmzyJ6MoUMooYSDDgn6ag_MQn8dlMDrgbhC8pgh8CU1rwekrcxJVeOMKR1PUZNxPLuA-0DF8BvNmfk4VIc6WQrWIxF4oMvg5IFfhjq-BhilSvLltwGpoQQn4dd8MS4o1xlG-c/s400/grade8-woodie-pivot-points.png" width="400" /></a></div>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span><span style="font-family: "arial" , "helvetica" , sans-serif;">
Because they have different formulas, levels obtained through the Woodie
 calculations are very different from those gotten through the standard 
method. Some traders prefer to use the Woodie formulas because they give more
 weight to the closing price of the previous period. Others prefer the 
standard formulas because many traders make use of those, which could 
make them self-fulfilling. In any case, since resistance turns into support (and vice versa), if
 you choose to use the Woodie formulas, you should keep an eye on these 
levels as they could become areas of interest. Whatever floats your 
boat!

</span><br />
<h2>
<span style="font-family: "arial" , "helvetica" , sans-serif;">Camarilla Pivot Point</span></h2>
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><span style="font-family: "arial" , "helvetica" , sans-serif;">R4 = C + ((H-L) x 1.5000)<br />
R3 = C + ((H-L) x 1.2500)<br />
R2 = C + ((H-L) x 1.1666)<br />
R1 = C + ((H-L) x 1.0833)<br />
PP = (H + L + C) / 3<br />
S1 = C - ((H-L) x 1.0833)<br />
S2 = C - ((H-L) x 1.1666)<br />
S3 = C - ((H-L) x 1.2500)<br />
S4 = C - ((H-L) x 1.5000)</span>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i>C - Closing Price, H - High, L - Low</i></span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><br />
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">The Camarilla formulas are similar to the Woodie formula. They also 
use the previous day's close and range to calculate the support and 
resistance levels. The only difference is that you should calculate for 8 major levels 
(4 resistance and 4 support), and each of these levels should be 
multiplied by a multiplier. The main concept of Camarilla pivot points is that it is based on the
 idea that price has a natural tendency to revert back to the mean 
(sound familiar?), or in this case, the previous day's close. The idea is that you should buy or sell when price reaches either the
 third support or resistance level. However, if price were to burst 
through S4 or R4, it would mean that the intraday trend is strong, and 
it's about time you jump on that bandwagon! Check out how the Camarilla calculation gives different levels (solid
 lines) compared to the standard method's levels (dotted lines)! </span><br />
<br />
<div class="separator" style="clear: both; text-align: left;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhd1T58vYmIA7Qklg-p1h7Qc69xsjIjoI_aQPLIE-IFSsxU1qPzAsLpOFbnJ_Y71oGYzIekkNqVlNfT6Y91V7f36n2MoWdoJigBqA6OvtlX4lqfKM8asIHYSyb4k6ESxsfXIvtnJd79ggo/s1600/grade8-camarilla-pivot-points.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="620" data-original-width="1020" height="242" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhd1T58vYmIA7Qklg-p1h7Qc69xsjIjoI_aQPLIE-IFSsxU1qPzAsLpOFbnJ_Y71oGYzIekkNqVlNfT6Y91V7f36n2MoWdoJigBqA6OvtlX4lqfKM8asIHYSyb4k6ESxsfXIvtnJd79ggo/s400/grade8-camarilla-pivot-points.png" width="400" /></a></div>
</div>
<div style="text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"></span></div>
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><span style="font-family: "arial" , "helvetica" , sans-serif;"> </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">As you can see from the chart above, <b>more emphasis is given to the closing price as opposed to the pivot point</b>. Because of this, it's possible that resistance levels could be below the pivot point or support levels could be above it. </span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;"></span><span style="font-family: "arial" , "helvetica" , sans-serif;">See how all the support and resistance levels are above the Camarilla pivot point?</span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Fibonacci Pivot Point</span></h2>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">R3 = PP + ((High - Low) x 1.000)<br />
R2 = PP + ((High - Low) x .618)<br />
R1 = PP + ((High - Low) x .382)<br />
PP = (H + L + C) / 3<br />
S1 = PP - ((High - Low) x .382)<br />
S2 = PP - ((High - Low) x .618)<br />
S3 = PP - ((High - Low) x 1.000)</span>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i>C - Closing Price, H - High, L - Low</i></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Fibonacci pivot point levels are determined by first calculating the pivot point like you would the standard method. Next, multiply the previous day's range with its corresponding 
Fibonacci level. Most traders use the 38.2%, 61.8% and 100% retracements
 in their calculations. Finally, add or subtract the figures you get to the pivot point and voila, you've got your Fibonacci pivot point levels!

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<span style="font-family: "arial" , "helvetica" , sans-serif;">Look at the chart below to see how the levels calculated through the 
Fibonacci method (solid lines) differ from those calculated through the 
standard method (dotted lines).</span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;">The logic behind this is that many traders like using the Fibonacci 
ratios. People use it for retracement levels, moving averages, etc. Why not use it for pivot points as well?

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<span style="font-family: "arial" , "helvetica" , sans-serif;">Remember that both Fibonacci and pivot points levels are used to find
 support and resistance. With so many traders looking at these levels, 
they can actually become self-fulfilling. </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Which method is best?</span></h2>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">The truth is, just like all the variations of all the other 
indicators that you've learned so far, there is no single best method. 
It really all depends on how you combine your knowledge of pivot points 
with all the other tools in your trading toolbox. Just know that most charting software that do automatic calculations 
normally use the standard method in calculating for the pivot point 
levels. But now that you know how to calculate for these levels on your own, 
you can give them all a swing and see which one works best for you. 
Pivot away!</span> </div>
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<h1>
Summary: Pivot Points</h1>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Here are some easy-to-memorize tips that will help you to make smart pivot point trading decisions:</span></div>
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">Pivot points are a technique used by traders to help determine potential support and resistance areas.</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">There are four main ways to calculate for pivot points: Standard, Woodie, Camarilla, and Fibonacci.</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">Pivots can be extremely useful in Stock Market since many share usually fluctuate between these levels. Most of the time, price 
ranges between R1 and S1.</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">Pivot points can be used by range, breakout, and trend traders.</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">Range-bound traders will enter a buy order near identified levels of support and a sell order when the pair nears resistance.</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">Pivot points also allow breakout traders to identify key 
levels that need to be broken for a move to qualify as a strong momentum
 move.</span></li>
<li style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Sentiment (or trend) traders use pivot points to help determine the bullishness or bearishness of a currency pair.</span></li>
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">The simplicity of pivot points definitely makes them a useful
 tool to add to your trading toolbox. It allows you to see possible 
areas that are likely to cause price movement. You'll become more in 
sync to market movements and make better trading decisions.</span></li>
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">Using pivot point analysis alone is not always enough. Learn 
to use pivot points along with other technical analysis tools such as 
candlestick patterns, MACD crossover, moving averages crossovers, the 
stochastic, RSI, etc. The greater the confirmation, the greater your 
probability of a successful trade!</span></li>
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PIVOT POINT Pivot Point is a technical indicators, pivot point is a method of calculating the support and resistance for a particul...