Can you explain what a pivot point is in trading?

Question

W WordWizard876 on 13.09.2023 Posts: 53

So, I've been dabbling into trading recently and there's this term that pops up quite often: pivot point. At first, I thought it was a dance move or something of that nature but turns out it has something to do with predicting market trends. I kind of understand that it's one of those fancy mathematical calculations which help to give a prediction of where prices might shift. But even though I've read some articles on this, I'm still a bit lost. Perhaps someone could use simpler terms or layman language to explain what a pivot point in trading actually is? What does it represent and why is it so important? Is it really as useful in trading as people make it out to be?

Trading-Setup.com - Empower your Trades! · Accepted Answer

A pivot point is a technical analysis indicator used to determine the overall trend of the market over different time frames.
It is calculated by taking the average of the high, low, and closing prices from the previous trading day.
Traders use pivot points to identify potential support and resistance levels, which can signal when to enter or exit trades.

C CodeWizard666 on 03.11.2023 Posts: 57 · Accepted Answer

Alright, so in the simplest terms, a pivot point is a technical analysis tool used to determine the overall trend of the market over different time frames. It's essentially a figure used to understand market trends and, yes, they tend to be quite handy as they're used by traders as potential support and resistance levels – the points where the market trend might change.

C ChefExtraordinaire76 on 04.11.2023 Posts: 49 · Accepted Answer

It's also helpful to understand that pivot points are efficiently used in conjunction with other forms of technical analysis. So, while the pivot point itself provides a level at which traders view the market trend could potentially change, additional indicators such as MACD or RSI can also provide signals for suitable entry or exit points.

One of the key strengths of pivot points is that they are predictive as opposed to lagging. Traders utilize them to anticipate potential future market movements, rather than just responding to market movements as they occur. That's why they form a crucial part in plethora of trading strategies used by day traders as well as swing traders.

Has anyone here experimented with pivot points in their trading strategy? If yes, how successful were they and in what situations you found them to be particularly useful?

F FitnessFreak741 on 10.12.2023 Posts: 65 · Accepted Answer

Despite their popularity, it's crucial to keep in mind that no technical analysis tool is foolproof, and that includes pivot points. They might seem like a solid part of a strategy on paper, but real-world market conditions can be highly unpredictable and influenced by unforeseen events. While they can suggest potential support and resistance levels, these are not guaranteed to hold. Market psychology and global events can easily overpower these technically predicted levels. Also, if everyone is looking at the same pivot point levels, the sheer volume of trades made in response can actually distort the market, creating self-fulfilling prophecies or causing false breakouts that can trip up even seasoned traders. Has anybody else found that reliability of pivot points can vary a lot depending on the current market volatility or other trading indicators being used? Or have things like news events ever taken your trades through a loop, even when pivot points suggested otherwise?

E EcoWarrior11 on 21.12.2023 Posts: 51 · Accepted Answer

Absolutely, external factors can blindside traders, stressing the importance of combining pivot points with other tools and staying aware of news events. Diversity in strategy helps mitigate risks when those unexpected swings occur. How do you all integrate pivot points with your market analysis routine to strike a balance and avoid such surprises?

M MasterChef543 on 26.01.2024 Posts: 63 · Accepted Answer

Integrating pivot points with broader market analysis definitely adds an edge to decision-making. Curious to hear more about personal experiences or lesser-known tips on aligning these with real-time market analysis to really harness their potential.

N NatureNurturer210 on 11.03.2024 Posts: 60 · Accepted Answer

Certainly, I'd be keen to hear as well how traders adjust pivot point strategies during high-impact economic announcements or earnings reports, to avoid being caught off-guard.

A AdventureSeeker303 on 17.03.2024 Posts: 57 · Accepted Answer

One interesting strategy some traders use to harness pivot points more effectively is to combine them with candlestick patterns. Since pivot points provide an expected support or resistance level, observing candlestick formations around these levels can offer additional clues about potential market moves. It’s an approach that values price action and can sometimes provide more context to what the pivot points are indicating. Has anyone paired pivot points with candlestick analysis, and if so, what patterns have proved most indicative when approaching these critical levels?