pivot points as a negotiating strategy

You'll love this lesson. Using pivot points as a negotiating strategy has been a long time and was originally used by floor traders. It was a simple way for floor traders to an idea of where the market is headed in the day with just a few simple calculations have.

The pivot point is the level at which the direction of market trends for the day. Using some simple calculations and the previous days high, low and close, a number of points are derived. These points can be critical support levels and resistance. The pivot level, support and calculated from the levels of resistance that are collectively known as pivot levels.

Every day the market you are following is an open, high, low and close for the day (some markets like foreign exchange are 24 hours but usually 5PM EST used as the opening and closing). This information contains in principle all the information you need to use pivot points.

The reason pivot points are so popular is that they are predictive as opposed to lagging. You use the information from the previous day to calculate potential turning points for the day you go (today) trade.

Given that many traders follow pivot points you will often find that the market reacts at these levels. This gives you the opportunity to trade.

If you prefer the work of turning points for yourself, the formula I use is below:

Resistance 3 = High + 2 * (Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = (High + Close + Low) / 3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2 * (High - Pivot) As you can see from the above formula, just by having the previous days high, low and close you eventually finished with 7 points, 3 resistance levels, 3 levels of support and the actual pivot.

If the market opens above the pivot point then the bias on the day of long trades. If the market opening below the pivot point then the bias for the day is for short trades.

The three most important points are pivotal R1, S1 and the actual pivot point.

The general idea of negotiating points of articulation are looking for a change or a break of R1 or S1. When the market is expected to reach R2, R3 or S2, S3 the market already bought or oversold and these levels should be used as outputs rather than inputs.

A perfect game would be for the free market above the pivot level and then stall slightly at R1 then go to R2. You may enter a break of R1 with a target of R2 and when the market was really strong half-closed to R2 and R3 target with the rest of your post.

Unfortunately life is not easy and we have to deal with each trading day the best way we can. I once randomly last week and what follows are some ideas on how you could have traded that day using pivot points.

On August 12 the 04 Euro / Dollar (EUR / USD) was as follows:
High - 1.2297
Low - 1.2213
Close - 1.2249

This gave us:

Resistance 3 = 1.2377
Resistance 2 = 1.2337
Resistance 1 = 1.2293
Pivot Point = 1.2253
Support 1 = 1.2209
Support 2 = 1.2169
Support 3 = 1.2125

Take a look at the list below 5 minutes

The green line is the pivot point. The blue lines are resistance levels R1, R2 and R3. The red lines are support levels S1, S2 and S3.

There are several ways to trade on the day using pivot points but I am going through some of them and discuss why some are good in certain situations and why some are bad.

The avoidance of trade

Early in the day, we were the pivot point, so our preference is for a short trades. A channel is formed, so that you are looking for a break out of the channel, preferably on the back. In this type of business you sell your listing, just below the bottom line of channels with a stop order just above the upper channel line and a target of S1. The problem today is that, S1 was very close to the level of the meat into small groups and it just was not enough on the market (13 pips). This technique is good for you input. Just because he was not suitable this day, does not mean it will not match the next day.

The Trading down

This is one of my favorite set ups. The market is going through S1 and then recedes. An order entry is placed below support, which in this case was the most recent low before the withdrawal. A stop is then placed over the withdrawal (the most recent peak - peak) and a target for S2. The new problem, this day has been the target of S2 was to close, and the market has never been supported before, we said that market sentiment is changing.

Breakout of Resistance

As the day progressed, the market began to return to S1 and formed a channel (congestion area). This is a good set-up a business. An entry order is placed just above the upper channel line, with a stop just below the bottom line of channels and the first target, the central line. If you where more of a negotiating position, then you almost half your position as the market approaches the pivot line, tighten your stop, then watch the market action at that level. In this case, the market never stopped and your second target then became R1. It was also easy to reach and I would have closed the rest of the position at this level.

Advanced

As I said earlier, there are many ways to trade with pivot points. A more advanced method is the use of the cross of two moving averages as a confirmation of an outbreak. You can even use combinations of indicators to help you decide. It is probably the cross of two averages and MACD is in buy mode. Waste time with some of your favorite indicators but remember the signal is a break of a level and indicators are just confirmation.

We did not even patterns around pivot levels or failures, but this is not the point of this lesson. I just want to introduce another possible way for you to trade.

Good trading