Monthly Pivot Points

Monthly Pivot Points are a well-known trading method. The term “monthly” indicates that the pivot levels are calculated using the prior month’s high, low and closing price. Quarterly pivot analysis, another tool, uses the same equations, but the previous quarter’s data.

What are Monthly Pivot Points?

Monthly pivot points are a technical analysis tool used by traders to identify potential support and resistance levels for the upcoming month. Like weekly pivot points, monthly pivot points are calculated based on the previous month’s high, low, and close prices. However, they are calculated using a different formula than weekly pivot points.

The monthly pivot point formula is as follows: Pivot Point = (Previous Month’s High + Previous Month’s Low + Previous Month’s Close) / 3

In addition to the monthly pivot point, four other levels are calculated: two resistance levels and two support levels. These levels are calculated as follows:

  • Resistance 1 = (2 x Pivot Point) – Previous Month’s Low
  • Resistance 2 = Pivot Point + (Previous Month’s High – Previous Month’s Low)
  • Support 1 = (2 x Pivot Point) – Previous Month’s High
  • Support 2 = Pivot Point – (Previous Month’s High – Previous Month’s Low)

These levels can be used by traders to identify potential entry and exit points for trades, as well as to set stop-loss and take-profit levels.


Using Monthly Pivot Points in Trading

Trading involves identifying potential areas of support and resistance based on the previous month’s high, low, and closing prices. These levels can be used to inform trading decisions and manage risk. When the price of an asset is trading above the monthly pivot point, it is considered to be in an uptrend, and the monthly pivot point becomes a potential area of support. Conversely, when the price is trading below the monthly pivot point, it is considered to be in a downtrend, and the monthly pivot point becomes a potential area of resistance. Traders can use these levels to set entry and exit points for their trades. For example, a trader may set a buy order at the monthly pivot point with a stop-loss order just below the level. Similarly, a trader may set a sell order at a level of resistance just above the monthly pivot point with a stop-loss order just above the level.

In addition to the monthly pivot point, traders may also use other levels, such as the first and second support and resistance levels, as additional areas of support and resistance. These levels are calculated based on the monthly pivot point and the range of the previous month’s high, low, and closing prices. It is important to note that while monthly pivot points can be a useful tool in trading, they should not be used in isolation. It is important to consider other technical indicators, market sentiment, and economic news to make informed trading decisions.

Monthly Pivot Points Example
Monthly Pivot Points Example

Monthly Pivot Point Trading Strategies

Monthly pivot points can be a useful tool in trading, as they can help traders identify potential support and resistance levels for the upcoming month. Here are some common ways that traders use monthly pivot points in their trading:

  1. Pivot Point Breakout Strategy: This strategy involves looking for a breakout above or below the monthly pivot point. If the price breaks above the pivot point, traders may interpret this as a bullish signal and look to buy. Conversely, if the price breaks below the pivot point, traders may interpret this as a bearish signal and look to sell.
  2. Pivot Point Reversal Strategy: This strategy involves looking for price to reach the monthly pivot point and then reverse direction. If price reaches the pivot point and then starts to move higher, traders may interpret this as a bullish signal and look to buy. Conversely, if price reaches the pivot point and then starts to move lower, traders may interpret this as a bearish signal and look to sell.
  3. Pivot Point Bounce Strategy: This strategy involves looking for price to bounce off the monthly pivot point. If price reaches the pivot point and then bounces higher, traders may interpret this as a bullish signal and look to buy. Conversely, if price reaches the pivot point and then bounces lower, traders may interpret this as a bearish signal and look to sell.

In addition to these strategies, traders may also use the resistance and support levels calculated from the monthly pivot point to identify potential entry and exit points for trades.

Monthly Pivot Points Pros & Cons

Pros

  • Monthly pivot points are calculated using the previous month’s data, which provides a longer-term perspective compared to daily or weekly pivot points. This can be helpful in identifying longer-term trends and potential support and resistance levels.
  • Monthly pivot points are calculated in a consistent manner, which allows for easy comparison across different assets and time periods.

Cons

  • Monthly pivot points are calculated using the previous month’s data and may not be as accurate when applied to intraday trading.
  • Monthly pivot points may not be suitable for all assets, particularly those with low liquidity or volatile price movements.

Conclusion

It’s important to note that pivot points are just one tool in a trader’s arsenal and should be used in conjunction with other technical analysis tools and risk management strategies. Traders should also keep an eye on economic events and news that may impact the market.


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