Pivot points are potential support and resistance area in the market, to calculate the pivot point for today's trading you'll need the high low and close of the previous day's last candle
note if it is a bullish candle the close is at the top and if it's a bearish candle the close is at the bottom .
The pivot point could either be a support or a resistance depending on where the candlestick closed if the value of the candlestick close is above the pivot point that means the pivot point is a support and if the value of the candlestick close below the pivot point that meanst the pivot point is your Resistance it's just as simple as that!!!.
There are 7 levels in the pivot point
Resistance 3: it ths the third level above the pivot point , its also above the resistance 2 and it's the third level of resistance
Resistance 2: it's the second level above the pivot point l, its above the resistance 1 and also the second level of resistance
Resistance 1: it if the first level above the pivot point, also the first level of resistance
Pivot point: this is the main pivot point on the chart it's the middle level and also the most important
Support 1: it is the first level below the pivot point and also the first level of support
Support 2: it's is the second level below the pivot point, its the level below the support 1 and the second level of support
Support 3: it is the third level below the pivot point, its the level below the support 2 and it's the third level of support
When the price is above the pivot level and reaches any of the resistance level it is said to be in a bullish trend and when the price reaches any of the support level it is said to be in a bearish trend, we mostly use our resistance level to set our take profit and support for our stop loss.
Pivot Points Calculation and R1 R2 S1 S2 pivot level calculation.
Pivot points can be calculated by using the HIGH,LOW AND CLOSE of the last candle of the previous day.
Pp= pivot point
H = high
L = low
Additional of the previous days last candlestick high low and close then divide it by 3 [high+low+close/3]
Before calculating the R1 R2 S1 S2 you'll have to know the value of your pivot point
2 * pp - low
How to Apply Pivot Points on Chart
I'll be using tradingview
Click on the FX indicator
We'll be using the standard pivot point so click on it
Click on settings to make some changes cause We'll be using only our resistance 1,2,3;pivot point and support 1,2,3 so remove others
You can also select the colours you want your resistance ,support and pivot point to be in
How Pivot Points Work
Pivot point can be used to determine the trend of the market if the price is above the pivot point is an upward trend and if below the pivot point its a bullish trend
In the image above
The price was above the pivot point which shows that it's in an uptrend when price reached the resistance level from our knowledge on support and resistance we know it's going to reverse so we can set our take profit at the resistance level and whenever it reached the support level trader can also go long. And if it continues to break the resistance level well more up trend for us
In the image above
The price was below the pivot point which shows that's it's in a downward trend so traders in a short position would take their profit when it reached the support level and then it retests the resistance level they could also go short again. And if it continues to break the support level well more downtrend for us.
Pivot Points Reverse Trading
there's no guarantee price will reverse from R1, R2, R3 or S1, S2, R3 as the price can break them and continue going further. That it's why it's good to use more indicators for confirmation the more confirmation the better and you couo also use candlestick reversal patterns.
The image above is a chart of doge against BTC on a 15min time frame , the price went below the pivot point which shows that it's in a downward trend it reached the S1 and broke it , a person on a short position should take the profit at S1 cause price is going to reverse and test the resistance level and as we can see in the chart the price started rising the continuation of the chart shows that price broke the pivot point level and tested the R1. So at this point traders can go long .
As we can see in the image above price was above the pivot point which shows an up trend, it reached the R1 and broke it, traders on a long position should take their profit at R1 cause price is going to reverse after testing the resistance level and as we can see in the chart the price went below the pivot point level which show a downtrend. So at this point trader can go short
Common Mistakes in Trading with Pivot Points.
No indicator is best to be used alone because it doesn't give a 100% assurance that why it's good to use more indicators with the pivot point for more confirmation, like I said tlearlier the more confirmation the better
A lot of traders Also rely on the fact when when the price is above the pp it will surely Retest the support level and when it's below the pp that it will Retest the resistance level and won't set their stop loss because of the assurance they have that it will hit their target.
What could be the reasons for Pivot Points is Good (Pros)
Pivot points are good cause it helps easily know the support and resistance level and it's applicable on any time frame.
It's also helps to determine market trend and possible reversals in price.
Technical Analysis using Pivot Points Indicator
In this section, I will apply pivot points indicator on doge/BTC to indicate a trend. This analysis will be carried out using 15mins chart for today's market
At the beginning of the day price was above the the pivot point which shows that is is an upward trend , price tested the resistance 1 and broke it ,it went further to break the resistance 2 showing more upward trend as a trader who went long you are meant to take your profit at the R1. As we can see after the price tested the R2 it started falling, in predicting the price will fall,break the pivot point and test the S1.
In the diagram below is the chart of gold against the USD on a 15min time frame
The price was below the pivot point at the beginning of the day , which means a downward trend,it continue to go downward by testing the S1 and breaking it, it also went further to test the S2 it broke it again it tested the S3 and broke it... This shows a really bearish market... Using the pivot point you should know the price would rise testing the S2 and S1 again or even the pivot point once again, during the following day the price the to even beat the R1 as we can see in the image below.
Weekly price forcast for bitcoin (BTC)
Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. The cryptocurrency was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto. The currency began use in 2009 when its implementation was released as open-source software
Red arrow: resistance
Blue arrow: support turns resistance and also resistance turns support
Green arrow: support
This is a chart of BTC/USD on a 30min time frame on my metatrader app
The blue arrow was initially the support cause price rose to the resistance level from there it retested the support again and bounced back to the Resistance level... The concept of the support and Resistance for example is that if you hit plank of wood with a hammer the wood weekends right? And if you continue to hit the wood it will eventually break, that just what's happening here also the more retest we get the weaker the level is, the resistance level had been tested twice now which makes it weak so price will eventually break throughout it and turning the resistance level into a supoort.
After the second retest price went down through the support level makeing the support to train into a resistance so a new support is now formed eventually....
Price went up after testing the new support and retested our support level that turned into a resistance (blue arrow) this zone was retested twice and like I said earlier the more retest the weaker the zone becomes. So from my analysis I'm predicting that price will break though the support that turned resistance because the zone is already weak and it's going to rise and break our first resistance also (red arrow) cause that zone is also weak already. So let's watch out for this currency pair...
My Reason for analysing the bitcoin is actually nothing special, like why won't you wan to trade bitcoin!!! It's the king of all crypto .. lest say I traded it cause of it high volatility (the bitcoin market is always loud), it's volume which is high and also it's circulation in the market, there are alot of coins that are depending on the btc blockchain and lastly you can almost trade the btc with anoother cryptocurrency.
Thank you so so so much @stream4u for this great lesson it was actually difficult a bit for me but I took my time to understand your lesson and also the questions and I found out that it's very useful the pivot point analysis is a great one which one should use cause it's also based on the concept of support and resistance. But trading the pivot point alone isn't a great idea , it could be used with other indicators cause the more confirmation the better. Thank you once again sir @stream4u I'll indeed miss you on the 2weeks break you going to have.