Pivot points are a popular tool traders use to predict market movements and identify potential support and resistance levels.
However, when it comes to professional traders, the question remains – do they use pivot points in their trading strategy?
This article will explore whether pivot points are a valuable tool for the pros.
What are pivot points?
Pivot points are a technical analysis tool traders use to predict potential market movements and identify key support and resistance levels.
The pivot point uses mathematical calculations to find the average high, low, and closing prices from the previous trading day.
Based on this pivot point, additional support and resistance levels are calculated using a formula that considers the price movement range from the previous day.
The first level of support is calculated by multiplying the pivot point by two and subtracting the high from the previous day. The first resistance level is calculated by multiplying the pivot point by two and subtracting the low from the previous day.
Once the support and resistance levels have been determined, you can use them to find entry points. For example, you may set a buy order at the first level of support and a sell order at the first level of resistance.
There are several different types of pivot points, including
- Standard pivot points
- Fibonacci pivot points
- DeMark pivot points
Each variation uses a slightly different calculation method, and you may choose to use one type of pivot point over another, depending on your trading strategy.
Do pros use pivot points?
Now that you know what pivot points are, let’s move to the main part of the article.
Professional traders use a variety of strategies to inform their trading decisions.
Regarding pivot points, pros have no clear consensus about their use. Some traders swear by pivot points and use them as a key component of their trading strategy, while others call them irrelevant.
So, let’s hear arguments from both sides.
- Professional traders may use pivot points because of their ability to identify potential support and resistance levels.
- As pivot points are calculated using the previous day’s price data, they can provide traders with valuable information about market trends and potential entry and exit points.
- The other thing is pivot points are simple to use. Pivot points can be calculated using simple mathematical formulas and quickly incorporated into a pro trader’s overall strategy.
- Some pro traders don’t use pivot points because they rely on past price data and their potential for false signals.
- As pivot points rely on past price data, they may not accurately reflect current market conditions.
- So, there are arguments from both sides; it’s up to you to decide if you want to add pivot points to your trading strategy.
While some pro traders consider pivot points as part of their strategies, others don’t consider them at all.
If you want to use pivot points in your trading strategies, you can combine them with other forms of technical analysis, like using indicators like the RSI or finding chart patterns.
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