​How to use pivot points to accurately grasp the support and resistance of the market?

PivotPoint is an important technical analysis tool in trading and is widely used in short-term trading in stocks, futures and foreign exchange markets. It not only helps traders identify the direction of market trends, but also provides key price levels that can become a turning point in the price in the near term. To help everyone understand and use pivot points more deeply, EagleTrader will introduce this special technical analysis tool in detail today.

Calculation method of pivot point

The calculation of the pivot point is relatively simple, and is usually calculated based on the opening price, closing price, highest price and lowest price of the previous trading day. The following are commonly used calculation formulas:

Pivot point (PP)=(High+Low+Close)/3

where High represents the highest price in the previous trading day, Low represents the lowest price, and Close represents the closing price.

In addition to the basic pivot points, there are several common variants, including:

First support level (S1)=(2*PP)-High

First resistance level (R1)=(2*PP)-Low

Second support level (S2)=PP-(High-Low)

Second resistance level (R2)=PP+(High-Low)

Application scenarios of pivot points

The application scenarios of pivot points are very wide, mainly including the following aspects:

Determine the timing of entry:When the price approaches or breaks through the pivot point, this may be a better buy or sell signal.

Set the stop loss position:Set the stop loss position below or above the pivot point to help traders manage risks.

Identify trend reversal:If the price continues to break through multiple pivot point levels, this may indicate a trend reversal.

How to use pivot points to increase profit

To make full use of pivot points to improve profitability, traders can adopt the following strategies:

Combined with other technical indicators:such as MACD, RSI, etc. to increase the accuracy of transaction decisions.

Set a reasonable take-profit target:When the price reaches or is close to the higher-order pivot point (such as R2 and R3), consider closing the position and making profits.

Flexible adjustment strategy:According to changes in the market environment, adjust the way to use pivot points in a timely manner.

Practical application of pivot points

In actual use, traders need to pay attention to the following points:

• Focus on multiple pivot point levels: In addition to the main pivot points, traders should also pay attention to other relevant levels, such as the three support levels below the pivot point and the three resistance levels above. These levels can provide potential profit targets or stop loss levels.

• In combination with market trends: The effectiveness of the pivot point depends to a large extent on the market trend. In an upward trend, prices may continue to break through resistance: in a downward trend, prices may continue to fall below support. Therefore, traders need to formulate trading strategies based on market trends.

• Set reasonable stop loss and take profit: Stop loss and take profit are the key to successful transactions. Traders should set reasonable stop loss and take profit levels based on market volatility and their own risk tolerance.

Precautions

While pivot point is an effective technical analysis tool, it is not a foolproof predictor of market activity. When using pivot points, traders need to pay attention to the following points:

• Avoid over-dependence: Pivot points are just one of many technical analysis tools, and traders should avoid over-dependence on it and ignore other important factors.

• In combination with other analytical tools: To improve accuracy, traders can use pivot points with other technical analytical tools (such as moving averages, relative strength indexes, etc.).

• Flexible adjustment strategy: The market environment is constantly changing, and traders should flexibly adjust their strategies according to market changes to avoid carving a boat and seeking a sword.

Pivot points play an important role in forex trading, which can help traders better judge market trends and potential price reversal points. By rationally using pivot points, traders can manage more effectivelyRisk, increase the success rate of transactions.