Co-ordinate Your Trading Activity with Pivot Points 

Content Details 

• Summary: This article explores how traders can effectively use pivot points to coordinate their trading activities. Pivot points are technical analysis indicators used to determine the overall trend of the market across different time frames. The article will provide a comprehensive guide on calculating pivot points, understanding their significance, and implementing them in trading strategies. 

• Target Audience: Intermediate to advanced traders who are familiar with basic trading concepts and are looking to enhance their trading strategies with technical analysis tools. 

Expanded Response 

Quote: "Co-ordinate your trading activity with pivot points." 

• Definition: Pivot points are technical analysis indicators used by traders to determine potential support and resistance levels. They are calculated using the high, low, and close prices from the previous trading period. 

Stages: 

• Calculation of Pivot Points: Calculate the main pivot point (P), support levels (S1, S2, S3), and resistance levels (R1, R2, R3) using the previous period's high, low, and close prices. 

• Identification of Key Levels: Identify the pivot point, support, and resistance levels on the chart. 

• Trading Strategy: Use these levels to make informed trading decisions. For example, if the price is above the pivot point, it indicates a bullish sentiment; if below, a bearish sentiment. 

• Example in SPX: As of now, the current price of SPX is 4400. Suppose the previous day's high, low, and close were 4450, 4350, and 4400, respectively. The pivot point (P) would be calculated as (4450 + 4350 + 4400) / 3 = 4400. Support and resistance levels can then be derived from this pivot point. 

• Practical Application: Traders can use pivot points to set entry and exit points for their trades. For example, if the price is approaching a support level, a trader might consider buying, expecting the price to bounce back. Conversely, if the price is nearing a resistance level, selling might be considered to avoid potential price drops. 

Trading Strategy: 

• Day Trading: Use intraday pivot points calculated from the previous day's high, low, and close. 

• Swing Trading: Use daily pivot points calculated from weekly or monthly data for longer-term trends. 

Risks: 

• False Signals: Pivot points may sometimes give false signals if the market conditions are highly volatile. 

• Market Sentiment Changes: Sudden changes in market sentiment due to news or economic events can render pivot point analysis less effective. 

Indicators for Identifying and Trading Pivot Points: 

• Simple Moving Averages (SMA): Help to identify the overall trend and confirm the significance of pivot points. 

• Relative Strength Index (RSI): Can be used alongside pivot points to confirm overbought or oversold conditions. 

• Volume Analysis: Higher trading volume near pivot points can confirm the significance of these levels.