Pivot Point: how to trade in correct way

Pivot Points are indicators of resistance and support levels that arise from mathematical formulas. There are some very interesting points that prompted me to use them more and more in my daily analysis to search for intraday trading positions.

In this article I suggest a graphical and practical method of reading and application. I also drafted a statistical study on one of the schemes and managed to automate it with an expert advisor.
What are Pivot Points

As mentioned above, the Pivot Points are numerical levels that arise from the observation of the average of Maximum, Minimum and Close. This media is precisely called Pivot.

Then the Pivot is projected above the Maximum or below the Minimum with the following Classic formula:

 

 

How I read the Trend of the day

The setup I use is graphic with H1 timeframe but Pivot calculation on the Daily.

The Pivot Point indicator can be downloaded from here: pivot [right click and save as]

 

 

Bullish Pivot Point

According to my application and reading of the pivot points, a figure as above, in which the price opens above the PIVOT daily indicates a bullish day. In this case I would try to go long on the following levels:

 

Long on S1 with P lens
Long on S2 with S1 object
Long on R1 with R2 lens

moreover, if I also use the Demand & Supply oscillator, I would check some other bullish signal in the event of “stressed” downward histograms in the vicinity of the Pivot levels.

 

Bearish Pivot Point

My application of the Pivot Points on the figure above shows me an open market below the level of the Pivot Daily and therefore I classify the day as SELL. To this end I have 3 alternatives:

 

 

I sell on breakout S1 with target S2
I sell on the R1 pullback with target P
I sell on the R2 pullback with target R1

Using the Supply & Demand oscillator could greatly help me find some bullish excess to short out near the Pivot levels. In this case, in fact, I would only evaluate SELL during that working day.

 

How I set the Stop Loss and Take Profit

As for the stop loss, it is common to be able to set it in the closest levels.

In case of a rise on S1 then the stop is S2, in case of S2 then the stop is the minimum of the day. In case of a rise in breakout on R1 towards R2 then the stop is on the Pivot.

 

• Same downward pattern.
• Stop loss reduction and breakeven

It is a good rule to reduce the stop loss in half when the price reaches half the target … and then bring it into breakeven as well.

Example: I enter S2 for S1 with a range of 100 pips and a stop of 50. If the price rises by +50 pips (half target) then I am going to reduce the stop loss to -25. If the price were to approach the target, I can enter the Breakeven (or even stop loss).

 

When to avoid entering with Pivot Points?

It will not be possible to trade with Pivot Points every day. And not every day it will be possible to go into profit. For some it might seem strange but it is part of trading to also have stop losses or days in which you do not enter the market. The sooner you digest this concept, the sooner you will be able to make progress towards the professionalism of this fabulous profession.

There are 3 cases in which it is recommended to stay out of the market:

 

If the price opens too close to S1 or R1 or above them
If the price is sideways and fails to break S1 and R1
If the price arrives on S1 and R1 towards the end of the day (in this case there would be no time and attention necessary for a night trend in our favor)

Pivot Point Camarilla

Here the Nick Scott formula:

 

R4 = Closing + ((High -Low) x 1.5000)

R3 = Closing + ((High -Low) x 1.2500)

R2 = Closing + ((High -Low) x 1.1666)

R1 = Closing + ((High -Low x 1.0833)

PP = (High + Low + Closing) / 3

S1 = Closing – ((High -Low) x 1.0833)

S2 = Closing – ((High -Low) x 1.1666)

S3 = Closing – ((High -Low) x 1.2500)

S4 = Closing – ((High-Low) x 1.5000)

 

Pivot Point Demark formula

Tom Demark formula:

 

 

Pivot Point Fibonacci

Fibonacci formula:

 

Pivot Point (P) = (High + Low + Close)/3

Support 1 (S1) = P - {.382 * (High  -  Low)}

Support 2 (S2) = P - {.618 * (High  -  Low)}

Support 3 (S3) = P - {1 * (High  -  Low)}

Resistance 1 (R1) = P + {.382 * (High  -  Low)}

Resistance 2 (R2) = P + {.618 * (High  -  Low)}

Resistance 3 (R3) = P + {1 * (High  -  Low)}

 

Woodie pivot point

Here Woodie formula where the Close Price is powered:

 

R2 = PP + (High – Low)

R1 = (2 X PP) – Low

PP = (High + Low) + (2 x Closing Price) / 4

S1 = (2 X PP) – High

S2 = PP – (High + Low)