Prior to the time when everyone had easy access to the markets and charts, trading was a relatively exclusive club. To be actively trading or investing you had to have a membership to an exchange or access to someone who did. If you wanted to chart the markets to make a technical decision, you would have to order a book with the prices of your securities for the past week or month and draw out the charts by hand.

Traders on the floor of the exchanges developed a calculation based on past prices that could offer them a method of determining potential support and resistance for trading the next day or week. While these levels are not as powerful or widely followed as actual supply and demand zones, the floor trader pivot points can still offer insight as to where prices are likely to move.

You may notice that I used the terms support and resistance when referring to the pivot points rather than demand and supply. These terms refer to different concepts altogether. The terms support and resistance refer to traditional technical analysis techniques and have been shown by many traders not to be as accurate as the patented supply and demand core strategy from Online Trading Academy.

 

Pivot Points as an Odds Enhancer

The support and resistance of pivot points can be used as an odds enhancer in conjunction with the supply and demand zones you find on your charts. The classic pivot point is simply the previous day’s high + the previous day’s low + the previous day’s close divided by three. This pivot point can act as a support or resistance level for price and can be applied to equities, Forex, and futures charts. Since the futures and Forex markets trade 24 hours a day we do not have an official daily close. In order to calculate the pivots, the close is considered to be the trade price at 5:00PM New York time (EST).

In addition to this pivot point number, there are some additional mathematical calculations that can offer a trader additional support and resistance numbers. There are calculations available for four additional support and resistance levels. Once calculated, you can use these pivot support and resistance to confirm potential entries and exits for your trading and investing.

chart

Many online trading platforms automatically draw pivot points on your chart for you once trading has begun for the day. If you are planning your trading activity the evening before or early in the morning, you may want to identify the pivots before they are available from your software. There are several pivot point calculators that will either give you the pivot points or allow you to calculate them yourself. One that I like is mypivots.com. On the site there is a pivot point calculator where you can enter the numbers and receive the pivot points for any security.

chart

You will notice that there are midpoints identified in addition to the pivots. These midpoints could also mark potential turning points for price action.

While the core use for the pivot points is intraday charting, you could enter the weekly or even the monthly high, low and close to determine the future support and resistance levels for swing and position trading as well. Remember, these pivot points should not take the place of the supply and demand zones that you visually identify on your charts. Supply and demand zones are caused by the trading history of institutional investors and traders and should be the basis of your trading decisions.

The pivot points were used by many of the institutional traders on the floor and are still used when they are trading electronically. If these institutions take trading actions on these levels, the levels will potentially carry enough power to move market prices. Since they were primarily used in the futures pits, the pivot points tend to work best on the indexes and commodities.

Since the tool has gained popularity, they can work on individual stocks and support your demand and supply zones on those charts as well. However, the pivots will have the most success on the ETFs and indexes those ETFs follow.

chart

So, while they are not a replacement for the core strategy, floor trader pivots are an interesting tool that can assist traders and investors in making informed decisions on where to buy and sell their securities. Whatever tools you decide to use, make sure they are a part of a written trading plan that allows you to objectively analyze the markets and consistently make decisions. That consistency is critical to being successful in the markets. Online Trading Academy’s core strategy is an excellent approach to doing this. Visit your local center to learn it today!

Read the original article here - Pivoting for Profits

This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms

Education feed

Editors’ Picks

EUR/USD extends recovery beyond 1.1050 on Saudi output headlines

News indicating that Saudi Arabia’s oil output would return to normal quicker than expected, lifted the market’s mood and weighed on the greenback. EUR/USD underpinned by improved Business Sentiment according to the German ZEW Survey.

EUR/USD News

GBP/USD rallies past 1.2500, reaches fresh multi-week highs

The GBP/USD pair is trading above the 1.2500 figure, getting a boost from easing demand for the greenback following relief news related to the crude oil market after the weekend attack to Saudi facilities.

GBP/USD News

USD/JPY drops back to recent range after hitting fresh 6-week highs

The USD/JPY pair spiked to 108.35, reaching the highest intraday level since August 1st and then pulled back to the 108.15/20 area.

USD/JPY News

Editors’ Picks

EUR/USD extends recovery beyond 1.1050 on Saudi output headlines

News indicating that Saudi Arabia’s oil output would return to normal quicker than expected, lifted the market’s mood and weighed on the greenback. EUR/USD underpinned by improved Business Sentiment according to the German ZEW Survey.

EUR/USD News

GBP/USD rallies past 1.2500, reaches fresh multi-week highs

The GBP/USD pair is trading above the 1.2500 figure, getting a boost from easing demand for the greenback following relief news related to the crude oil market after the weekend attack to Saudi facilities.

GBP/USD News

USD/JPY drops back to recent range after hitting fresh 6-week highs

The USD/JPY pair spiked to 108.35, reaching the highest intraday level since August 1st and then pulled back to the 108.15/20 area.

USD/JPY News

Saudi Arabia's oil output to be fully back online in next 2-3 weeks

Citing two sources briefed on the Saudi oil operations, Reuters reported that Saudi Arabia's oil output would return to normal levels quicker than initially thought.

Read more

Gold struggles to find direction, trades in tight range near critical $1,500 handle

The XAU/USD pair struggling to make a decisive move on Tuesday and continues to trade in a relatively tight range around the $1,500 handle.

Gold News

RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Strategy

Money Management

Psychology