Daily pivot points are mathematical values got by using previous day’s high, low and close. There are different formulas to calculate pivot values, but in our examples we will use standard pivot points.
Pivot points consists of:
Pivot(PP), resistance 1(R1) and support 1 (S1), resistance 2(R2) and support 2(S2) and so on.
Points we can glean from these pivot points are…
- Direction of trend.
- Turnaround points of trend.
- Points where momentum might accelerate in a certain direction.
- As support and resistance points.
- As target points.
Let us see how the pivot points can be utilized to our advantage.
- Direction of the market can be called as up, when the price action is over PP line and down, when the price action is below daily PP line. That is, we look for long setups above daily PP line and short setups below daily PP line.
- Turnaround points of price action means, when the up trend converts to downtrend and a down trend converts to uptrend. These points can be recognized by :-
From uptrend to down trend:
15 minute pivot below the break of daily PP line of any day and the subsequent breakdown of that 15 minute pivot low is considered as start of a down trend.
From downtrend to up trend:
15 minute pivot after the break of daily PP line of any day and the subsequent break of that 15 minute pivot high is considered as start of a new uptrend.
- Momentum acceleration in upward direction happens when R1 breaks in the opening bar and start breaking upwards subsequently, or afternoon breakouts over R1.
- Momentum acceleration downwards happens when S1 breakdown in the opening bar and starts breaking downwards subsequently, or afternoon breakdowns below S1.
- Pivot points also work as support and resistance points in sideways market and as target points for intraday trading.
Let us now see chart examples of the above points
In the above chart white horizontal lines are the daily PP lines R1 lines are the blue thick lines and S1 are the red thick lines. The blue box marks the area where the price action stayed above the white PP line and hence maintained the uptrend. The red box marks the area where the price action tried to stay below white PP line and hence can be treated as down trend.
In the above chart R1(blue thick line) breaks out in the opening bar….which leads to a volume + momentum surge in upward direction.
In the above chart, S1(red thick line) breaks down in the opening bar….leading to a volume+momentum move in downward direction.
In the above chart R1 breaks out in the afternoon time leading to a volume+momentum upward move.
Like this the above points can be used to build a comprehensive strategy for intraday or positional