Pivot points are key levels that traders use all over the world. In simple terms, they help traders determine which way the price will move during the upcoming session.
These levels are calculated by using data from the previous session to provide average prices from which to expect reactions (or at least some type of market activity). The most important pivot point is the central pivot. (Reportedly, traders would use this as one of their main tools in the pits, before online charting existed.)
Pivots are certainly not perfect, but they can be extremely effective as part of an overall trading strategy.
How Do I Use Pivot Points?
Personally, I don’t like to use pivots in the traditional sense ( i.e. for entering the market). Instead, I prefer to use them as profit targets.
If I enter a trade, for example, I look for the closest pivot point as a possible place to take my profits. When price gets to these levels, I expect a reaction. What is not certain is how powerful these reactions will be or how far they will push the price back against the trade. For this reason, it is always best to take the profits off the table rather than risk losing money on a previously winning position.
Pivot points can be calculated manually, and these calculations can be relatively easily found online. Most charting platforms, however, will have indicators that do these calculations for you. They’ll also plot the points on the chart for you to clearly see.
You can also use pivots for entries, but only in very specific circumstances and at certain times.
Don’t trade pivot points blindly! Only refer to them when you know which direction a pair is heading over a longer term. (Click to Tweet)
So there you have it; a simple way to apply and incorporate pivot points into your trading. But maybe not the way many coaches teach them!
P.S. If you want to learn more about how I trade, check out the link below: