Learn How to Use Pivot Point in Intraday Trading Online | Espresso

How to Use Pivot Point in Intraday Trading?

If you are an experienced trader and know your way around the financial markets, intraday trading can be very lucrative for you, as long as you research your trades well. But many traders are new to the market or may have never experimented with different day trading strategies. Here, the pivot point trading strategy in intraday trading is something you might want to know about.

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What is a Pivot Trading and Pivot Point Calculator?

To begin with, you should first know what a pivot point is and how its calculation can help you in intraday trading. A pivot point is a technical analysis tool for tracking the market trend across different points in time. It is the mean of the previous day’s high, low and closing prices.

If the trading goes above the pivot point, then the previous day’s pivot point is an indication of a current bullish market. And if the previous day’s trading is below the trading point, then the next day’s session indicates a bearish sentiment.

You can also use a pivot point calculator to gauge the pivot points for the security you are trading in. For example, you can use this calculator for bonds, futures, stocks, commodities, forex, options, etc.

How to Use Pivot Point Trading Strategy?

Now that you know what the pivot point calculator does, here is how you can use the pivot point trading strategy in intraday trading. If the stock price at the opening time of the market is above the basic pivot level, also known as PP, the bias tends to be bullish. If the price crosses R1 (Resistance 1), you can set the target at R2 (Resistance 2) and purchase the stock. Similarly, if the opening price of the stock falls below the basic pivot level, the bias will be bearish.
Also Read: What is Bear Market & How to invest in falling market?

To make use of the pivot point trading strategy, it is also important to know about pivot level breakout and pivot point bounce.

In the pivot level breakout, you need to start the intraday trading with a stop-loss order which means you will open the position when the price goes over a pivot point level. These breakouts are important and help you decide how you should trade. Hence, if there is a bearish tendency, go for a short trade, whereas, in the case of a bullish bias, opt for a long trade.

The pivot bounce strategy focuses on the pivot points where the prices touch a pivot point and then bounce. This is where you should open your position. While using this technique, if a stock happens to show an upward bounce, this indicates that you should buy the stock. Likewise, if the stock shows a downward bounce, then you should sell the stock.

Once you calculate the pivot points for the day, add them to the open, high, low chart (OHLC). Then monitor the prices to check if they close on any pivot point. This is where you can see the prices touch a new high or a new low. In the next step, allow the price to reach the pivot point and enter the trade when you see the first price bar touching a new high.

Conclusion

The reason pivot points are crucial but effective for intraday trading is because day trading is very time-sensitive, and the stock movements need to be monitored closely at all times. It is also essential to make concrete trading calls that are sufficiently profitable. Since pivot points are a fairly reliable tool, they can be used in intraday trading.
Also Read: Best Timeframe for Intraday Trading

 

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Frequently Asked Questions

Yes, since pivot points are technical analysis tools, they are sufficiently accurate and reliable for intraday traders. However, they are not always precise.

Your intraday losses and profits depend on many factors like your knowledge of the market, the market conditions, demand, supply, etc. There is always a chance, no matter how small, of making a loss. Hence, always learn, understand and plan your trading activities before you start trading.

It is suggested that you use short time frames of 1, 2 or 5 minutes for pivot point calculation since the data has to be very specific in intraday trading.

You can find a pivot point calculator on any online trading website or forum. These are easy to use since you only need to refer to the chart and plan your trade accordingly. You don’t need to calculate the levels on your own.

Intraday traders use pivot points because this helps them identify sooner if the trade ends in a loss. In intraday trading, time is crucial for determining the result of your trade.