Understanding The Pivot Point Indicator

 

Have you ever wished you could predict the future? Wished you could know if you need bother with the heavy coat for the cold? Are you in the stock market, and do you have a knack for organization and wish to predict and plan for your stocks in the next trading period? I am sure you have.

In the stock market, a good trade based on reliable future predictions determines the next multi-billionaire and the next person whose stocks crumble. This is why the pivot point indicator was created.

The Pivot Point Indicator.

Between two trading periods, a lot of changes can occur. These changes may be caused by a variation in the trade regulations and taxes, the entry of a bigger player in the industry or even a change in the government of the country.

The pivot point is a price that is used to indicate the direction that the market might be headed to. The pivot point takes a number of factors into account including the performance of the market during the previous trading period, the political changes and the trading policies that have been changed. This price is calculated as an average of every significant price during the previous trading period.

If the trading price is higher than the price during the previous trading period, it is evaluated as bullish, and if it is lower than the previous period, it is referred to as bearish. To account for these variations when calculating the pivot point, an expected price differential is indicated. These price differentials are indicated either below or above the pivot point and are referred to as either support or differentials. Supports are differentials above the pivot point while resistance is a differential below the pivot point.

There are different methods that are applied in the calculation of the pivot point.

Installing the Pivot Point Indicator on MT4.

The Meta Trader 4 is a trading platform that is used by most online traders and brokers. While using the MT4, it is best if you have a predictor for your prices, and the Pivot Point Indicator is a good choice.

Installing it is easy as all you need is to download the Pivot Point Indicator. Afterward, locate the Pivot Point Indicator files then open the folder indicated as “Data” on your MT4. Follow the succeeding instructions to finish the installation, and the chart will appear on your MT4.

Calculating Pivot Points.

Now that you have downloaded and installed the Pivot Point Indicator, you have to calculate the most accurate pivot point. A number of methods are used when calculating pivot points, but the most used method Five Point System. Calculating the pivot points using this system requires the highs and lows of the previous day in addition to two support and two resistance levels.

There are markets that run through 24 hours, like the New York Stock Exchange, while other markets have a closing time. The pivot points in a 24-hour market are calculated at 4 pm EST, while for the other markets, the pivot points are calculated at the time the market closes.

There are three types of pivot points:

a)        Fibonacci Pivot Point

Using this method, you first calculate the pivot point, just like when using the standard method. The range from the previous day is then multiplied by the by the Fibonacci level.

b)       Camarilla Pivot Point

When calculating using this method, the previous day’s range is used to calculate the day’s support and resistance. Using this method, you are expected to calculate 4 resistance and 4 support levels, which are then multiplied by a multiplier.

c)        Woodie Pivot Point

This method of calculation is different from the standard method. The resistance and support levels are calculated using the difference from the previous day’s high and lows.

How to Identify the Support and Resistance Levels.

Support and resistance levels are very important while determining the pivot point. They give the range within which you should trade at to maintain your profits or to make a breakthrough. Identifying the most accurate support and resistance levels is therefore very important. You can identify them using the following methods:

a)        Psychology

Humans are simple breathing beings, and for this reason, they try simplifying everything, numbers included. When calculating the pivot point, you can use human psychology to do it. For example, if the prediction given is 1.5722, most traders would round it off to 1.5700 while a prediction of 1.5773 would probably be rounded off to 1.5800. You can use these two levels as your support and resistance levels. The number of zeros indicated would increase depending on how powerful the psych levels are.

b)       High and Lows

Previous trades are very useful in the calculation of pivot points, and the support and resistance can also be estimated using these trades. There are some levels in the past that the prices have been unable to go beyond, and you can use this as your support. We also have some low levels that the market prices haven’t gotten to, and these prices can be used as the resistance levels. This is a tedious process, considering the fact that you will have to go through every trade done previously. However, its predictability is very accurate.

c)        Pivot Points

The third and most common method that is used in determining the resistance and support levels is the pivot points method. This method uses the previous’ day highs and lows, and these highs and lows are used as the support and resistance levels of the day’s trading. Different trading periods are used, but the most common one is the daily period.

[Investopedia: How To Convert Value At Risk To Different Time Periods]

Benefits of Using The Pivot Point Indicator

a)        Pivot points give us a general direction of the market, hence indicating how we should trade. For example, if the prevailing market price is above the pivot, it indicates bullishness, and if it is below the pivot, it indicates bearishness.

b)       The pivot point ensures that you don’t lose your way when determining the target. The pivot point is determined by getting the average of the resistance and support levels, and it is within these levels that you are expected to buy and sell.

c)        They can be used as indicators of when to open positions. To ensure that you don’t suffer losses when the market reaches resistance, you could go long, and when the market drops to the support levels, you could go long.

The Bottom Line

Pivot Points are very important; they determine the bulls and bears of the market. When well predicted, the pivot point can lead to the birth of billionaires, but if not when predicted, great losses can be suffered.

The Pivot Point Indicator is a useful tool that you can use with your MT4 to predict the resistance and supports, which in turn help you make the wisest decisions. Calculation of the pivot point can be done using several methods, but the recommended method is the use of the five-point method. With this method, you can easily get the resistance and support levels. These levels can also be gotten using other methods, including the evaluation of psych levels and using the market’s absolute highs and lows.

Trading should not be absolutely unpredictable, even though it is. The use of pivot points should enable you to trade much easier. Happy trading!