Pivot Points High Low: A Technical Trading Indicator Explained

February 21, 2022•5 min read

As a trader, you may come across various technical indicators that can help you make informed decisions. One such indicator is Pivot Points High Low. In this article, we will discuss what this indicator is, how to calculate it, and what it signifies in the markets. By the end of this article, you will have a clear understanding of Pivot Points High Low and how you can use it to your advantage in trading.

Section One: What are Pivot Points High Low?

Pivot Points High Low, also known as Daily Pivot Points, is a technical analysis tool that predicts market trends for the current day. It calculates potential support and resistance levels based on the previous day's price action.

The formula for Pivot Points High Low is:

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

Resistance 1 (R1) = (2 x P) - Low

Resistance 2 (R2) = P + (High - Low)

Resistance 3 (R3) = High + 2 x (P - Low)

Support 1 (S1) = (2 x P) - High

Support 2 (S2) = P - (High - Low)

Support 3 (S3) = Low - 2 x (High - P)

Section Two: How to Interpret Pivot Points High Low

Pivot Points High Low can be used to identify potential buying and selling points in the market. When the price is trading above the pivot point, it is considered bullish, and traders may look for buying opportunities. On the other hand, when the price is trading below the pivot point, it is considered bearish, and traders may look for selling opportunities.

Resistance and support levels are essential in trading as they give an idea of where the price may stop or reverse. In a bullish trend, the resistance levels may act as targets for buying positions while in a bearish trend, the support levels may act as targets for selling positions.

Section Three: How to Apply Pivot Points High Low in Trading

Pivot Points High Low can be applied in different ways in trading. Some traders use it as the primary trading strategy, while others use it in combination with other indicators. One way to use Pivot Points High Low is to look for trading opportunities around the support and resistance levels.

Another way to use Pivot Points High Low is to integrate it with other indicators, such as moving averages or oscillators, to confirm trading signals. For example, if the price is trading above the pivot point, and the moving average is showing an uptrend, it may strengthen the buy signal.

Lastly, traders may also use Pivot Points High Low as a risk management tool. By setting stop loss orders below the support levels or above the resistance levels, traders can limit their losses in case the market moves against their positions.

Section Four: Advantages and Limitations of Pivot Points High Low

Pivot Points High Low provides a simple yet powerful way to analyze the markets and identify potential trading opportunities. It is easy to calculate and can be used in different time frames, from intraday to weekly charts. Pivot Points High Low can also be used in all asset classes, such as stocks, forex, and commodities.

However, like all technical indicators, Pivot Points High Low also has limitations. It may not work well in trending markets or fast-moving markets as the price may break through the support and resistance levels. Additionally, Pivot Points High Low only considers the previous day's price action, which may not be enough to predict future market trends.

Conclusion

Pivot Points High Low is a technical trading indicator that can help traders identify potential buying and selling points and manage their risk. By calculating the pivot point, resistance, and support levels, traders can make informed decisions and improve their trading strategies. However, traders should also be aware of the limitations of Pivot Points High Low and use it in combination with other indicators and analysis methods.

With proper application and interpretation, Pivot Points High Low can be a valuable tool for traders of all levels to analyze the markets and increase their trading success.