Stock Trading Pivot Points
Pivot points is a set of indicators developed by floor traders in the commodities markets to determine potential turning points, also known as "pivots". These points are calculated to determine levels in which the sentiment of the stock trading trend could change from "bullish" to "bearish." Stock traders use these points as markers of support and resistance.
These points are calculated as the average of the high, low and close from the previous session:
Stock Pivot Point = (High + Low + Close) / 3
Day traders use the calculated pivot points to determine levels of entry, stops and profit taking, by trying to determine where the majority of other stock traders may be doing the same.
A pivot point is a stock price level of significance in technical analysis of a financial market that is used by traders as a predictive indicator of stock price movement. It is calculated as an average of significant stock prices (high, low and close) from the performance of a market in the prior trading period. If the stock prices in the following period trades above the central point it is usually evaluated as a bullish sentiment, whereas if stock price below the central point is seen as bearish.
The central point is used to calculate additional levels of support and resistance, below and above central point, respectively, by either subtracting or adding stock price differentials calculated from previous trading ranges.
A pivot point and the associated support and resistance levels are often turning points for the direction of stock price movement in a market.
- In an up trend, the pivot point and the resistance levels may represent a ceiling level for the stock price. if stock price goes above this level the upstock trading trend is no longer sustainable and a stock trading trend reversal may occur.
- In a down stock trading trend , a pivot point and the support levels may represent a low for stock price level or a resistance to further decline.
The central pivot point can then be used to calculate the support and resistance levels as follows:
Pivot points consist of a central point level surrounded by three support levels below it and three resistance levels above it. These points were originally used by floor traders on equity and futures exchanges because they provided a quick way for those traders to get a general idea of how the stock trading market was moving during the course of the day using only a few simple calculations. However, over time they have also proved exceptionally useful in other markets as well.
One of the reasons they are now so popular is because they are considered a "leading" (or predictive) indicator rather than a lagging indicator. All that is required to calculate the pivot points for the upcoming (current) day is the previous day high, low, and close stock prices. The 24-hour cycle pivot points in this indicator are calculated according to the following formulas:
The central pivot can then be used to calculate the support and resistance levels as follows:
Pivot Points Support and Resistance Levels
Pivot Points as a Stock Trading tool
The pivot point itself represents a level of highest resistance or support, depending on the overall sentiment. If the stock trading market is direction-less ( range bound ) stock prices will often fluctuate greatly around this level until a stock price breakout develops. Stock Prices above or below the central point indicates the overall sentiment as bullish or bearish respectively. This indicator is a leading Stock indicator that provides signals of potentially new highs or lows within a given chart time frame.
The support and resistance levels calculated from the central point and the previous market width may be used as exit points of the open Stock trades, but are rarely used as entry signals. For example, if the stock price is up-trending and breaks through the pivot point, the first or second resistance level is often a good target to close a position, as the probability of resistance and reversal increases greatly, with every resistance level.
In pivot point analysis three levels are commonly recognized above and below the central point. These are calculated from the range of stock price movement in the previous trading period and then added to the central point for resistances and subtracted from it for support levels.
Technical Analysis of Pivot Points
Pivot levels can be used in many different ways. Here are a few of the most common methods for utilizing them:
Stock Trend Direction: Combined with other Stock analysis techniques such as overbought/oversold oscillators, volatility measurements, etc., the central point may be useful in determining the general trending direction of the stock trading market. Trades are only taken in the direction of the Stock trend. Buy trades occur only when the stock price is above the central point and sell stock trades occur only when the stock price is below the central pivot.
Stock Price Breakouts: In stock price breakouts, a bullish buy stock trading signal occurs when the stock price breaks up through the central point or one of the resistance levels (typically Resistance 1). A short sell stock trading signal occurs when stock price breaks down through the central point or one of the support levels (typically Support 1).
Stock Trend Reversals: In stock trading trend reversals, a buy stock trading signal occurs when the stock price moves towards a support level, gets very close to it, touches it, or moves only slightly through it, and then reverses and starts moving in the other direction.
To download Pivot points:
Once you download it open it with MQL4 Language Editor, Then Compile it by pressing the Compile Button and it will be added to your MT4.
NB: Once you add it to your MT4, the indicator has additional lines named Mid Points, to remove these additional lines open MQL4 Language Editor(shortcut keyboard key - press F4), and change line 16 from:
extern bool midpivots = true;
extern bool midpivots = false;
Then Press Compile again, and it will then appear as exactly shown on www.tradestockstrading.com website.