Learn how to use floor trader pivots for trading with trend continuation, and how to plot and calculate pivot points for support and resistance levels.

Using Pivot Points in Trading: A Beginner’s Guide

The world of trading can be complex and intimidating, especially for beginners. However, there are tools that can help simplify the process and increase profitability. One of those tools is pivot points. Pivot points are a popular technical analysis tool used to determine potential support and resistance levels in a market. In this article, we will explore what pivot points are, how to use them, and their advantages and disadvantages.

What Are Pivot Points?

Pivot points are a set of horizontal lines drawn on a price chart to help traders identify potential levels of support and resistance. These lines are calculated based on the previous day’s price action and serve as reference points for determining where the price might encounter support or resistance in the current day’s trading session.

There are several different types of pivot points, but the most commonly used are the floor trader pivots. These are calculated based on the high, low, and close of the previous day’s trading session. Other pivot point types include woodies, camarilla, and Fibonacci. Each type of pivot point has its own formula for calculations, but floor trader pivots are the most popular and widely used.

How to Use Pivot Points in Trading

Pivot points can be used in several ways in trading. The most popular is as a tool to determine potential support and resistance levels. When the price approaches a pivot point, traders will look for signs of a reversal or continuation of the trend. Pivot points can also be used as entry and exit points for trades.

To use pivot points for support and resistance levels, traders will look at the pivot point and its surrounding levels. The pivot point itself is usually the most important level, followed by the support and resistance levels above and below it. If the price breaks through a pivot point or support and resistance level, traders will look for confirmation of a trend reversal or continuation before taking a trade.

Pivot points can also be used as entry and exit points for trades. If the price is above the pivot point, traders will look for long positions, while short positions will be sought if the price is below the pivot point. Stop losses can be placed below the pivot point for long positions and above it for short positions.

Advantages of Using Pivot Points

One of the biggest advantages of using pivot points is their simplicity. They are easy to understand and implement, making them an ideal tool for beginners. Pivot points also provide a clear reference point for potential support and resistance levels, allowing traders to set precise entry and exit points for trades.

Another advantage of pivot points is their universal use. They can be applied to any market and any time frame, making them a versatile tool for traders of all levels. They can also be used in conjunction with other technical analysis tools and indicators to increase profitability.

Disadvantages of Using Pivot Points

Despite their advantages, pivot points are not infallible. They are based on historical data and may not always accurately predict future market movement. They can also be subject to false breakouts, where the price breaks through a pivot point but quickly reverses, leading to losses.

Another disadvantage is that pivot points only provide a short-term view of the market. They are calculated based on the previous day’s price action and can only provide support and resistance levels for the upcoming trading session.

Conclusion

In conclusion, pivot points are a useful tool for traders looking to simplify their analysis and increase profitability. They provide clear levels of potential support and resistance and can be used in conjunction with other technical analysis tools. However, traders should be aware of their limitations and use them in conjunction with other tools for a more comprehensive analysis. With practice and experience, pivot points can be a valuable addition to any trader’s toolbox.