Pivot Point Trading -Day Trading Strategy



Pivot point trading was originally developed by traders on the floor of future exchanges.

Traders on the trading pits were only allowed to carry pens, notepads and calculators to record the price and do some calculations. So traders use pivot points as a guide to support and resistance level for their trading.In essence, there are 3 support and resistance price levels around the pivot point.

Pivot point trading still exists and can now be applied to electronic trading and lots of traders are taking advantage of this simple trading technique.

Pivot Point Calculations

To calculate the pivot point for the current day, you need to know the previous day's high, low and close price.

Pivot point (PP) = ( high+low+close)/3

Support

  • S1=(2x PP)-high
  • S2 =PP-high+low
  • S3 =low-2x(high-low)

Resistance

  • R1=(2xpp)-low
  • R2=pp+high-low
  • R3=high+2x(pivot-low)



I received an email regarding pivot point trading technique before. Initially I looked at it and thought nothing of it,probably someone trying to sell me /offering me financial services. But I just can't help wondering what if. So I watched it for a little while and then applied it together with my

short term delta trading. It seems trading pivot points is more effective on a choppy day. S&P 500 index below showed how effective this pivot point trading is.

pivot point trading example

The 1st horizontal line is the pivot point, the 2nd line is support line S1 and the 3rd line is the support line S2.

R3, R2 ,R1 and S3 lines are outside this trading range and not shown.

If you were an early person and/or could trade S&P 500 out of hours/CASH FUTURE, then you could have taken advantage of shorting from the pivot point to the first support line S1 which was around 8.4 points or 84 points using CMC markets spread bet.

If ignoring all to the left, the market gapped down when it opened UK time 14:30 ( US 9:30 am) and went past support line S1, then bounced up past support line S1 again. Short term delta point 3 was due soon and so it should turn down again.


As the overall trend was down, then delta point 4 should be lower than 2 as per my previously worked out solutions. I placed a down bet just below support line S1 and rode it all the way to the next support line S2 at DELTA turning point 4.

S&P 500 then went higher and past S1 and pivot point and then down again.I did not trade this move !! Well, I had to cook/eat my dinner, but it showed that this pivot points trading technique work quite well, especially with the projected delta turning points.

If you place buy/sell stop order just below/above support/pivot lines, it will get rid of all the emotions and the waiting for stock trading signals to cross/diverge to give you the buy and sell signals.

Pivot Point Trading Book & Other Short Term Swing Trading Strategies

If you want to learn more about trading pivot point, and other proven intraday/short term trading strategies, there is a book called

Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups (McGraw-Hill Trader's Edge Series) ,available from UK amazon online bookstore via this link.

and available in United States via this link:

There is a whole chapter dedicated to trading pivot point with lots of examples and the author, John F Carter goes into great length on telling how to trade pivot points and how to get in a little earlier than what I have shown. I have used some infos from the book for the above short entry where he showed mid support lines as well! There is also a section on scalping where he finds reversal points to trade as well.

A well written stock trading book with plenty of trading examples and ideal for day trading to a few days swing trading. A well recommended stock trading book to read for trading pivot points






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