What is pivot point ?
A pivot point (or fulcrum) is a point around which future
price movement is expected to range
Concepts of Pivot point
Based on previous days high, low and closed, pivot point,
three resistance R1, R2, R3 and three support S1, S2, S3 are
calculated. It is believed that stock price will range around pivot point most
of the time. When stock price reaches first resistance it has a tendency to
react to pivot point and in the same way when it moves towards first support it
has tendency to react to pivot point. The more movement away pivot point like
R3/S3 the more tendency to retrace.
Origin of Pivot Point in stock trading
Use of pivot point is noticed from trader trading in
trading zone of the market using pens and papers. These traders used
to use these support and resistance to trade in stocks. Even when sophisticated
tools have come these points have not lost its significance.
In fact they are used along with tools like candlestick, RSI etc.
Tips on trading with pivot point
When market opens above pivot point then it is likely to
stay above it. Traders may use this option to long and watch R1 as first
resistance.
When market opens below pivot point then it is likely to
stay below it. Traders may use this option to short and watch for S1 as
immediate support.
Some traders wait for 15-30 minutes to watch pivot point
position to take their call.
Stop loss for buy call can be S1 and stop loss for sell
call can be S1 to control losses.
Avoid using pivot point when some news that can affect
price of the stock is expected.
When stock opens above R2 or below S2 then some influence
is suspected. It may be safe to avoid them till it moves closer to R1 and S1.
They work well in sideways market or
non trending market.
In strong trending market avoid using pivot point.
Pivot point prediction can be done only for next trading
day.
Other useful information's helpful while learning Pivot
Points
If price is influenced by external news then pivot point
looses its significance.
Pivot point are not dynamic like moving average. Their
value stay same throughout the day.
In absence of external factors, pivot point is considered
as ideal balance between bulls and bears force.
Pivot point can be calculated for week, month etc.Formula
for Pivot Point Calculation
Pivot point (P) = (H + L + C) / 3
Resistance1 (R1) = (P x 2) - L
Support1 (S1) = (P x 2) - H
Where H - Highest Price
of Previous Day, L - Lowest Price of Previous Day, C -
Closing Price of Previous Day
Online calculation of pivot can
be found Here
Pivot Point and TopStockResearch
Pivot Point in TopStockResearch
is shown with three support (S1, S2, S3) and three resistance(R1, R2, R3)
respectively for each stock.
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