Welcome traders!
'Pivot Points' or 'Pivot Lines' are well-known to most traders. Despite there are some trading strategies based on the Pivots, I think, most traders will add them out of their trading-toolbox to put them to other instruments for trading-decisions.
First some basics, there are sources helping to understand, how Pivots are calculated and used:
babypips.com Pivot Points: The Free Forex Encyclopedia
wikipedia.org Pivot point - Wikipedia, the free encyclopedia
investopedia.com Using Pivot Points In Forex Trading
You'll find a lot more, just google it.
In Youtube and other video-platforms you'll find educational material, one of them is explaining very well 'Pivot Points - An Introduction to Pivot Point Trading'. The creator probably was a commercial trading-service, but the company now is out of business.
Second, my contribution in this thread will be reduced to 'short-term trading' and 'trading currencies – the forex'. Despite I’m aware of the possibility using pivots in stock-, index- and long-term trading, my experience is limited to forex and -as mentioned in title- 'short-term'.
This should not limit the discussion only focusing on this, but my usage does not include the other possibilities. May be I will learn something more.
Third, how to get pivot-data?
There are a lot of commercial web-sites providing daily and accurate data, for example at ActionForex. Also most trading-platforms have a library with technical analysis tools like Fibonacci, Moving Average and others, including Pivots too. If your platform doesn't provide this, you may include pivots in your chart, if the platform is able to integrate personal code. Using the MetaTrader, you'll find probably thousands of programmed indicators by traders or companies to attach them to your chart. Some you have to pay for, but a lot of them you get free.
For pivot indicators you shouldn’t pay anything, because the calculation -meaning programming this- is not complicated and there are many existing ones without any fee. I'll come back to this later.
Fourth, why using pivots?
Not going deep into the basics of trading this zero-sum-game, you have heard for sure the very intelligent headlines like 'go with the trend (it's your friend)', 'cut losses' and so on. It's very easy to say this, but less easy to implement this in a trading concept. So you may go for a fundamental, technical or a combined strategy to setup your personal trading system.
I don't know if there is an analysis about the winning/losing probability of pivots, but you'll find such analysis for 'Fibonacci' Trading. And the result of research ref. Fibonacci-accuracy to get an edge was disappointing: there was none!
Nonetheless there are successful Fibonacci-traders. Why? – They are using them as one of more different tools.
The same procedure should be used with pivots. It's not enough to have a look, see the daily pivot, price going through downwards and say: 'Hey, now it's time to sell.'
Interesting question too, why are Fibonacci-levels and pivot-lines so well-known despite there is no statistical edge, at least for pivots. Answer: there is herd-instinct, self-fulfilling prophecy. And this is not limited to the numerous retail traders. If you look at the screens of professionals, traders at banks and funds, you would be surprised to see some simple technical tools, most of them you know very well. So if large volume is -besides of fundamental causes- moved by such tools, a lot of traders do this and this tools becoming points of price-action. That's all. Simple? – Yes it is. And this corresponds to statements, that the best trading-systems often are very simple.
Back to the pivots …
Below you see a nearly naked EUR/USD chart with timeframe 15 minutes of today with the default pivot-lines. And you see that the price respects the pivots. Always? – No, not always market recognizes pivots and if news moves the price or momentum of a move is strong enough, price will pop or drop through a pivot like a knife through butter. This isn't the case with pivots only, but with all other chart-lines too.
Despite trading-environment is not 'usual' these days, thinking at the expected military actions of US forces against Syria, which already caused large volatility in energy-markets, you see price coming to daily pivot, moving around before going down to support S1, bouncing back up to the pivot-line before dropping down through S1. Momentum wasn't enough to go to S2 so far.
Next example, CAD/CHF chart of today. Price moved indecisive around the pivot, going up to touch R1, retracing to break this level - but only to return.
Enough so far – welcome to all, who want to contribute here.
Good luck trading
josch
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