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Pivot Points are a popular tool used by day traders. Therefore, traders run the calculation at night or in the morning to provide themselves with the Pivot Points for the upcoming session. Pivot Points are a day trading tool, and therefore typically applied to chart time-frames of minutes or less 1-min, 5-min, etc. There are typically 5 lines using Standard Pivot Points please note, over the years a number of Pivot Point variations have been developed.
All calculations are based on the last trading session. In this case, the price opens at the Pivot P and quickly drops, never moving toward R1 and R2.
The Pivot P provides a context for the day. When the price is above P it shows strength. When the price is below P it shows weakness. In figure 1 the price drops below P immediately after the open, showing initial weakness. This set a bearish tone and indicated that traders should be more inclined to take short positions buying puts.
If the price crosses below P, the first target is S1. If the price continues to decline the next target is S2. If the price crosses above P, the first target is R1. If the price continues to advance the next is R2. S1 and S2 can also act just like normal support. If the price reaches S1 or S2 and stops, traders can look for trade setups or patterns that indicate a bounce, and then take a long position as the price bounces off the support level.
Typically traders wait for the price to pause and bounce, and not just assume that these levels will act as support. In figure 1 the price shows no respect for S2, and just keeps dropping. The price does stall at S1, and possibly some traders may have viewed this as a bullish sign. But with overall momentum down, and no strong moves higher, even here traders should be more inclined to look for short positions buy puts than look for longs. R1 and R2 act the same way.
They provide areas of potential resistance. If the price reaches and stalls at a resistance area, traders can look for trade signals to go short buy puts once the price has shown respect for the resistance level. Pivot Points can be a useful tool for gauging intra-day momentum and providing some potentially important areas which traders can use to filter trade signals.
Pivot Points Pivot Points are a day trading tool, and therefore typically applied to chart time-frames of minutes or less 1-min, 5-min, etc. Additional Pivot Points can also be added, such as R3 or S3 to create even more levels to watch. Thinkorswim Final Word Pivot Points can be a useful tool for gauging intra-day momentum and providing some potentially important areas which traders can use to filter trade signals.