Pivot Points

Definition

Pivot Points are a technical analysis tool used to identify and predict potential reversal points in market prices. This indicator calculates highs and lows within a specific time period to pinpoint market turning points, helping traders make buy or sell decisions.

Components and Calculation of Pivot Points

• Pivot Point High: Refers to a price reaching a peak where there are lower highs on both sides within a specified number of candles.

• Pivot Point Low: Refers to a price reaching a trough where there are higher lows on both sides within a specified number of candles.

Parameters of Pivot Points

• Left Candles: Number of consecutive historical candles to the left of the Pivot Point, including the candle where the Pivot Point is located.

• Right Candles: Number of consecutive historical candles to the right of the Pivot Point, excluding the candle where the Pivot Point is located.

• Pivot Point Bandwidth: Used to scale the Pivot Point upwards or downwards.

How to Use Pivot Points Indicator

• Open long when the price reaches a Pivot Point Low, indicating higher lows on both sides within the specified number of candles.

• Open short when the price reaches a Pivot Point High, indicating lower highs on both sides within the specified number of candles.

Advantages and Disadvantages of Pivot Points Indicator

Advantages:

• Pivot Points are easy to understand and apply, requiring no complex calculations, making them suitable for all types of traders.

• Pivot Point Highs and Lows provide clear buy and sell signals, helping traders better grasp market trends.

Disadvantages:

• Pivot Points may lag as they require observation of a specified number of candles, potentially delaying trade signals and failing to reflect rapid market changes promptly.

• In volatile markets, Pivot Point Highs and Lows may generate false signals, leading to erroneous trading decisions.