How To Use Pivot Point In Intraday Trading?

How To Use Pivot Point In Intraday Trading? Introduction, How to Calculate

There are various tactics that traders use to make intraday trading easier, but intraday trading still requires careful attention to market developments. One such tactic is the pivot point, which examines the market trend using the low, high, and mean closing prices from the previous day. 

The market is expected to move in a bullish direction if the analysis from the previous day is above the pivot point. On the other hand, it is anticipated that the stock market will follow a bearish trend if the analysis from the previous day is below the pivot point.

The chart has seven pivot levels, with the fundamental pivot level in the center, three resistance pivot levels above it, and three support pivot levels below it. 

Curious about the purpose of the pivot levels? The pivot levels assist intraday traders in determining the anticipated point from which prices can rise and encounter opposition. In a similar manner, the pivot levels can also assist intraday traders in determining the anticipated position from which the prices can dip and find support.

Pivot Levels In Intraday Trading: How Do You Open?

When the market starts each day, the pivot levels play a crucial role, but only with appropriate analysis. A specific stock is predicted to behave in a bullish manner if it opens above the fundamental pivot level and in a bearish manner if it opens below the fundamental pivot level. 

The optimal timing for an intraday trader to buy if they need to is when the stock is heading lower and crosses pivot level R1 support. The buyer begins when the stock reaches the R2 support pivot level, which is below the basic pivot level. The intraday trader decides to take action based on the full technical analysis because the trends vary daily and there is no requirement to follow an order.

The pivot point trading method is based on two fundamental ideas that provide intraday traders with a clear understanding of how it operates. Pivot point bounces and pivot level breakout are the two fundamental ideas in pivot point trading.

Bounce at Pivot Point

Pivot point bounce plays an important role in deciding when to buy the stock and when to sell it. A signal to enter a trade is provided when the price of a specific stock approaches the pivot point and subsequently recovers.

This approach focuses on identifying price rebounds at chart pivot points. It is a sign to start the trade when the price of a certain stock touches the pivot point and bounces back. 

When should you use the pivot point bounce method to purchase and sell? When there is an upward bounce on the upward side, it is advised to buy the stocks in the pivot point bounce approach. While it is time to sell the stocks if the opposite occurs and there is a downward bounce. 

Setting the stop-loss order in the proper place to limit losses is one of the important things to keep in mind.

The stop-loss order is placed based on the preferred length of time for which the stocks will be kept. The stop-loss should be placed above the pivot point if the trader is aiming for a short holding period and below the pivot point if the trader is aiming for a long holding period.

Breakout at Pivot Level

The stop-limit order approach is used to execute this trade, and the trader opens the position when the price crosses the pivot point. When the trend exhibits a bearish performance, a short trade is made, and when the trend exhibits a bullish performance, a long position is made. 

Normally, this trade is carried out in the morning and starts with a short trade. In order to prevent any form of loss, it is crucial to apply the stop-loss order threshold in the proper position. 

Usually, the breakout transaction occurs in the morning, and setting a stop-loss limit protects money against unforeseen price fluctuations. To lessen risk, it is possible to change the stop-loss at a position before the breakout.

How To Calculate Pivot Points?

Pivot points are simple to calculate, and the data is taken from the previous day, which aids traders in forecasting the direction of the market. 

There are programs that use OHLC (open, high, low, close) bar charts to plot pivot points for weeks and months. Still, it's best to plot them daily using values from the day before because the market is unpredictable and requires quick reflections, which such older data might not be able to provide.

The correct OHLC pivot level graph must be plotted by calculating each of the seven pivot levels, as was previously indicated. Calculating the basic pivot level near the center, we use the formula PP = (Previous High + Previous Low + Previous Close)/3.

Floor traders who operated in a volatile environment in the equities and commodities markets were the ones who first discovered pivot points.

Conclusion

Using pivot points intraday has a number of advantages, but there is no assurance that the technique will always be successful. The greatest advice is to always employ a stop-loss order method to reduce risk, but that is not all. Knowing where to place the stop-loss limit is crucial for traders using pivot point trading.

How to use pivot point in intraday trading FAQs

What is a pivot point in intraday trading?

A pivot point is a technical analysis indicator used in intraday trading to identify possible support and resistance levels. 

How to calculate pivot points?

Pivot points can be calculated using this simple formula: PP = (Previous High + Previous Low + Previous Close)/3.

How many pivot levels are there? 

There are seven pivot levels, with the fundamental pivot level in the center and three support pivot points, and three resistance pivot points located above and below it, respectively. 

What is a pivot point bounce?

Pivot point bounce plays an important role in deciding when to buy the stock and when to sell it.

What is a pivot point breakout?

In this approach, a short trade is executed when the trend exhibits a bearish performance and a long position is taken when the trend exhibits a bullish performance.