MetaTrader4
Understanding Daily Pivot Points for Better Trading Decisions
The Daily Pivot Points indicator is a powerful tool that helps traders gauge future market movements, setting itself apart from other indicators that tend to lag behind. This indicator utilizes data from the previous day to calculate key checkpoints for today’s minor trends.
What are Pivot Points? The Pivot Point (PP) serves as the market’s equilibrium point—basically, a level that prices tend to gravitate towards throughout the day. By using three key values from the previous day—maximum, minimum, and close prices—traders can derive 13 levels for smaller timeframes: the equilibrium point, six resistance levels, and six support levels. These levels are what we call your checkpoints, making it easier to determine the direction of the minor trend.
Among these values, the equilibrium point, Resistance1 (RES1.0), and Support1 (SUP1.0) are the most crucial. You’ll often notice price pauses, or even reversals, as it moves between these points.
How Daily Pivot Points Work
Forecast the range of price fluctuations.
Identify potential price stopping points.
Highlight possible points for a change in price direction.
If the market opens above the equilibrium point, it’s a green light for long positions. Conversely, if it opens below, it’s a good day to consider short positions.
The checkpoint method involves monitoring potential reversals or breakouts when the price hits resistance level RES1.0 or support level SUP1.0. As the price approaches RES2.0, RES3.0, or SUP2.0, SUP3.0, you’ll often find the market overbought or oversold, making these levels ideal exit points.
The calculations for the Pivot Point (PP), Resistance1 (RES1.0), Resistance2 (RES2.0), Resistance3 (RES3.0), Support1 (SUP1.0), Support2 (SUP2.0), and Support3 (SUP3.0) are based on the previous day’s HIGH, LOW, and CLOSE values. This generates new values that map out potential future highs and lows.
PP = (HIGH + LOW + CLOSE) / 3
RES1.0 = 2*PP - LOWRES2.0 = PP + (HIGH - LOW)RES3.0 = 2*PP + (HIGH - 2*LOW)
SUP1.0 = 2*PP - HIGHSUP2.0 = PP - (HIGH - LOW)SUP3.0 = 2*PP - (2*HIGH - LOW)
RES0.5 = (PP + RES1.0) / 2RES1.5 = (RES1.0 + RES2.0) / 2RES2.5 = (RES2.0 + RES3.0) / 2
SUP0.5 = (PP + SUP1.0) / 2SUP1.5 = (SUP1.0 + SUP2.0) / 2
Where:
HIGH: The maximum price of the previous day.
LOW: The minimum price of the previous day.
CLOSE: The close price of the previous day.
PP: The equilibrium point (the typical price from yesterday).
RES and SUP: These are your checkpoints for resistance and support levels, respectively.
Understanding how to effectively use Daily Pivot Points can seriously enhance your trading strategy. By keeping an eye on these levels, you can make more informed decisions and potentially improve your trading outcomes.
2008.06.29
