A pivot point is a price level that is used by traders as a predictive indicator of market movement.
Professional traders and market makers use pivot points to identify potential support and resistance levels. Pivots give an idea to traders where price movement can possibly change.
If the market in the following period trades above the pivot point it is usually evaluated as a bullish sentiment, whereas trading below the pivot point is seen as bearish.
Pivot points are constants they are objective tool, unlike other tools. The reason is this that is derived from a constant formula, and traders cannot manipulate it.
One Reason that traders are using Pivot Points (support and resistance) that they are similar to Fibonacci levels and they are almost become self-fulfilling. Many traders keep an eye on these levels.
Pivot points are especially useful to short-term traders who to catch any small price movement. Like normal support and resistance levels, traders can choose to trade the bounce or the break of these levels.
- PP stands for Pivot Point.
- S stands for Support.
- R stands for Resistance.
If price is in a range Pivot Points help traders where to place their buy or sell orders. With Pivot Points you can also trade breakouts.
A pivot point is calculated as an average of significant prices (high, low, close) from the performance of a market in the prior trading period. If the market in the following period trades above the pivot point it is usually evaluated as a bullish sentiment, whereas trading below the pivot point is seen as bearish, pivot points take a huge part in market analysis.
Trading only with Pivot Points alone is not always enough. You must use Pivot Points along in conjunction with other technical analysis. The greater the confirmation, the greater your probability of a profitable trade.