Pivot Points Review – The Binary Logic

A pivot point is basically an indicator used to measure and determine the behaviour of the market within different time frames. Pivot point identifies the average, high low and closing price levels of the past days. When trading on top of the pivot points, it simply indicates a continuous bullish response while trading beneath the pivot point it shows a bearish response.  Pivot points are considered as most important in trading as they play a great role in psychological change for many traders as they will either buy or sell within the levels.

Pivot Points Review - The Binary Logic

As illustrated in the figure above, the pivot point acts a psychological level. There is a rebound pair as the price got a support on the pivot point.

How pivot points are calculated:

A Pivot point is calculated on daily basis at basically at the end of each trading session which will be used in the next session. Here are the three basic factors

-The highest point of the day

-The lowest point of the day

-The closing price

Pivot point is calculated as follows:

PP= (Highest point+ Lowest point+ Closing price)/3

This opens up a way to calculate the resistances and support as follows:

S1= (2*pp) – highest point

R1= (2*pp)-lowest price

S2=pp-(highest point –lowest point)

R2=pp+ (highest point-lowest point)

Risks associated with Bouncing from Pivot points:

The pivot point is always much-contested line thus the bull o or Bear will try its best from either side of the pivot to break that line thus you have t be always keen to watch for potential breakouts. In case it breaks in your position you can easily overpower as you can try to get to the bounce which allows the candles to form and touch the pivot to safeguard you from any potential risk.

Risks associated with Pivot Point Breakouts:

In most cases trading along a pivot line break leads to a very high risk as the pivot will hold on firmly. It is hard to predict if the initial move will still continue. Basically, there will be a crash on pivot bouncers from each side. Sometimes you might think that the prices have infiltrated successfully, just to discover that you have fallen into a trap as the bounce will take your position thus pushes you back to a stop. A false break occurs when a breakout looks like it took place but did not move along the direction of a break.

In conclusion, we have noted how pivot points use to practise the formula of the previous day’s high-low and future price act.The advantage of using pivot levels is that they are perfect  compared to support and resistance ;lines which are formed and move across high and low lines which  are very common. Apparently, they become self-fulfilling thus making it easy to predict where the prices will stop or reverse. What makes pivot point lines powerful is the fact that they act as pillars for the past and future price actions. When you put in place the correct pivot line indicator in your chart, it will possibly help you to track all the past battles within the market. This will also give you a clue of what the future market trends will be.

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