Day trading with pivot points - The Coach's Playbook

What is a pivot point?

A Pivot Point is a technical indicator that is used to determine market direction, as well as provide support and resistance levels. Though there are many different pivot points, they are all calculated using the same three standard variables: high, low, and closing prices.

Pivots points can be computed on any timeframe, such as hourly, daily, or weekly. Some traders will even break them down to shorter durations, like 5 or 15 minutes, for day trading purposes. Once the pivot point is determined, it becomes the starting point for a series of support and resistance levels calculated using a fourth variable, such as a Fibonacci decimal.

The five major types of pivot points are Standard Pivot Points, Woodie’s Pivot Points, Camarilla Pivot Points, Fibonacci Pivot Points, and Demark Pivot Points. As stated above, all five of these pivot point styles are calculated using the high, low, and closing prices of a specified timeframe, and the support and resistance levels are then calculated using the pivot point and another fourth variable.

How to use pivots

Pivot points are first and foremost used to help determine a bias, or direction, for the trading day. When a price is trading above a pivot point, it is technically considered to be in bullish territory. Inversely, when price is trading below a pivot point, it is considered to be in bearish territory. The support and resistance levels calculated using the pivot points can then be viewed as target areas if price stays above or below a pivot point.

These price levels are prevalent among retail traders, so it’s safe to assume that many traders are looking at the same areas. This is important when determining when to initiate a trade or set a stop price. For example, when you see a support level coinciding with a moving average, you can bet that there will be some buying going on when the market gets there.

Remember, a single indicator on its own usually does not provide enough confirmation to produce a high probability trade setup, so make sure to keep an eye on your other indicators for confirmation.

Trade Well!