A pivot point in financial trading is a technical analysis indicator used to determine potential support and resistance levels for a given asset’s price movement
It serves as a reference point for traders to make decisions about entering or exiting positions.
As Short time frames like 1-minute, 2-minute and 5-minute are the best for pivot point indicator. This makes pivot points more preferable to day traders.
Pivot points can be used to identify the overall trend, since a move through pivot points to the upside indicates an uptrend
Meanwhile the opposite, where a price continues to fall below pivot points during a session, is indicative of a downtrend.
Pivot Point is one of the most successful strategies to reduce the chances of loss and gain profit by selling and buying shares or stocks in Intraday Trading
Several methods exist for calculating the pivot point (P ) of a market. Most commonly, it is the arithmetic average of the high (H ), low (L ), and closing (C ) prices of the market in the prior trading period:
P = (H + L + C) / 3.
Sometimes, the average also includes the previous period’s or the current period’s opening price (O ):
P = (O + H + L + C) / 4.
In other cases, traders like to emphasize the closing price, P = (H + L + C + C) / 4, or the current periods opening price, P = (H + L + O + O) / 4.
Some technical analysts use additional levels just above and below the pivot point (P) to define a range called “Central Pivot Range” or simply “CPR”.
Hence, instead of focusing on just one single level, they consider a range or a zone.
The lower boundary of this range is called BC (Bottom Central) and is calculated as :
BC = (H + L) / 2
The upper boundary of this range is called TC (Top Central) and is calculated as :
TC = (P - BC) + P
The support and resistance levels calculated from the pivot point and the previous market width may be used as exit points of trades, but are rarely used as entry signals.
For example, if the market is up-trending and breaks through the pivot point, the first resistance level is often a good target to close a position, as the probability of resistance and reversal increases greatly.
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