Trading is a business that has great profit opportunities but also has high risks. Therefore, traders must have the right strategy to maximize profits and reduce losses. One strategy that can be used is pivot points.
You may have heard about pivot points before, but do you really understand what they are and how to use them in trading? This article will discuss in detail about how to trade using pivot points to help you maximize profits in the trading business.
Understanding Pivot Point and How to Calculate It
Before discussing how to use pivot points in trading, you must first understand what pivot points are and how to calculate them. Pivot points are support and resistance levels on a price chart, which are used to help traders determine the next direction of price movement.
There are several ways to calculate pivot points, but the most common way is to use this formula:
| Level | Formula |
|---|---|
| Pivot Point | (High + Low + Close) / 3 |
| Support 1 | (2 x Pivot Point) – High |
| Support 2 | Pivot Point – (High – Low) |
| Support 3 | Low – 2(High – Pivot Point) |
| Resistance 1 | (2 x Pivot Point) – Low |
| Resistance 2 | Pivot Point + (High – Low) |
| Resistance 3 | High + 2(Pivot Point – Low) |
After calculating the pivot point and support and resistance levels, traders can use them as a reference to determine the next direction of price movement.
Introduction: How to Use Pivot Points in Trading
Now that you understand what a pivot point is and how to calculate it, it’s time to visit the main topic of how to use pivot points in trading. In this article, we will discuss in detail about how to use pivot points in trading so that you can maximize profits in the trading business.
How to Read Pivot Points in Trading
One way to read pivot points in trading is to pay attention to the support and resistance levels formed on the price chart. If the price moves above the pivot point, the resistance levels can be used as higher price targets. Conversely, if the price moves below the pivot point, then the support levels can be used as lower price targets.
There are several strategies that can be used to read pivot points in trading, such as breakout strategies and bounce strategies.
Using the Breakout Strategy
The breakout strategy involves opening a trading position when the price breaks through the support or resistance levels formed on the price chart. If the price breaks through the resistance levels, traders can open long positions. Conversely, if the price breaks through the support levels, traders can open short positions.
Traders can determine the target exit level and stop loss level based on the support and resistance levels formed on the price chart. If the price fails to break the exit target level, traders can close the position with the resulting profit. Conversely, if the price manages to break the stop loss level, the trader should close the position with the resulting loss.
Using the Bounce Strategy
The bounce strategy involves opening a trading position when the price moves close to the support or resistance levels formed on the price chart. If the price approaches the resistance levels, traders can open short positions. Conversely, if the price approaches the support levels, traders can open long positions.
Traders can determine the target exit level and stop loss level based on the support and resistance levels formed on the price chart. If the price reaches the exit target level, traders can close the position with the resulting profit. Conversely, if the price reaches the stop loss level, the trader has to close the position with the resulting loss.
The Advantages of Trading Using Pivot Point
After understanding how to use pivot points in trading, it’s time to talk about the advantages and disadvantages of this way of trading. Here are some of the advantages of trading using pivot points:
1. Provides Clear Support and Resistance Levels
Pivot points can help traders determine clear support and resistance levels on the price chart. This can help traders determine the right entry points, exit targets, and stop loss levels.
2. Can be Used on Various Timeframes
Pivot points can be used on a variety of timeframes, so traders can use them for both short-term and long-term trading.
3. Easier to Use Than Other Technical Indicators
Pivot points are easier to use than other technical indicators such as moving averages or stochastic oscillators. Traders can easily understand and use it in trading.
4. High Accuracy
Pivot points have high accuracy in determining support and resistance levels on the price chart. This can help traders make the right trading decisions.
5. Widely Used by Professional Traders
Pivot points are widely used by professional traders, so they can be a reference for novice traders in developing trading strategies.
6. Has High Trading Volume
Pivot points have a high trading volume, so they can help traders make the right trading decisions based on market activity seen on the price chart.
7. Can Be Used Alongside Other Technical Indicators
Pivot points can be used in conjunction with other technical indicators such as moving averages or stochastic oscillators to increase accuracy and profits in the trading business.
Disadvantages of How to Trade Using Pivot Point
In addition to the advantages, how to trade using pivot points also has the following disadvantages:
1. Not Always Accurate in Determining the Next Price Movement Direction
Although pivot points have high accuracy in determining support and resistance levels on the price chart, they are not always accurate in determining the direction of the next price movement. A trader should always pay attention to fundamental factors and market sentiment before opening a trading position.
2. Not Suitable for Traders Who Use Very Fast Timeframes
Pivot points are not suitable for traders who use very fast timeframes such as scalping, because the support and resistance levels formed on the price chart can become invalid very quickly.
3. Not Suitable for Impatient Traders
Pivot points take time to form on the price chart, so they are not suitable for traders who are impatient in waiting for the right trading opportunity.
4. Can be Confusing for Beginner Traders
Pivot points can be confusing for beginner traders who have no experience in analyzing price charts. Therefore, beginner traders should first understand the concept of pivot points and how to use them in trading.
5. Not Always Applicable to All Markets
Pivot points do not always apply to all markets, as each market has different characteristics. Therefore, a trader should pay attention to fundamental factors and market sentiment before opening a trading position.
6. Can Be Too Simple For Some Traders
Some traders may feel that pivot points are too simple and do not provide enough information in technical analysis. Therefore, they prefer to use other more complex technical indicators in trading.
7. Requires Experience and Skill to Use
Pivot points require experience and skill in using them in trading. A trader must have enough knowledge and experience in observing price charts and analyzing market conditions before opening a trading position.
How to Trade Using Pivot Point – Q&A
1. What is a pivot point?
Pivot points are support and resistance levels on a price chart, which are used to help traders determine the next direction of price movement.
2. How to calculate a pivot point?
There are several ways to calculate pivot points, but the most common way is to use this formula: Pivot Point = (High + Low + Close) / 3
3. How to use pivot points in trading?
Traders can use pivot points as a reference to determine support and resistance levels, as well as determine the direction of the next price movement.
4. What are the advantages of using pivot points in trading?
The advantages of using pivot points in trading are that they provide clear support and resistance levels, can be used on a variety of timeframes, are easier to use than other technical indicators, have high accuracy, are widely used by professional traders, have a high trading volume, and can be used in conjunction with other technical indicators.
5. What are the drawbacks of using pivot points in trading?
The disadvantages of using pivot points in trading are that they are not always accurate in determining the direction of the next price movement, not suitable for traders who use very fast timeframes, not suitable for impatient traders, can be confusing for novice traders, not always applicable to all markets, too simple for some traders, and require experience and skills in using them in trading.
6. Are pivot points suitable for beginner traders?
Pivot points can be confusing for beginner traders who have no experience in analyzing price charts. Therefore, beginner traders should first understand the concept of pivot points and how to use them in trading.
7. How to determine the target exit level and stop loss level in trading using pivot points?
Traders can determine the target exit level and stop loss level based on the support and resistance levels formed on the price chart. If the price manages to reach the target exit level, the trader can close the position with the resulting profit. Conversely, if the price reaches the stop loss level, the trader should close the position with the resulting loss.
Conclusion
In the trading business, pivot points can be used as a reference to determine the direction of the next price movement and help traders in maximizing profits and reducing losses. Pivot points have advantages and disadvantages that should be considered before using them in trading. Therefore, a trader must first understand the concept of pivot points and how to use them in trading. Do not forget to always pay attention to fundamental factors and market sentiment before opening a trading position.
If you want to increase profits in the trading business, try to use pivot points as a reference in making trading decisions. Hopefully, this article can help you maximize profits and reduce losses in the trading business.
Disclaimer
This article is intended for educational purposes only and not as investment advice. Before trading, always do your research and consult a financial expert or broker before opening a trading position. The author and publisher are not responsible for any losses that may arise from the use of information contained in this article.
