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Using a bar chart you will observe that each
bar has an Open, High, Low and Close. This information represents
all price activity during that particular period.
In the case of the following example we shall
use a daily bar.
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To calculate the pivot point all you need
to do is add the High, Low and Close. Once this has been
done you next divide the total by three e.g. The cash FTSE
on the 2nd May 02 had a High of 5192.70 a low of 5125.50
and a close of 5174.10 If you add the three together you
get 15492.3. You then divide that total by three to get
a Pivot Point of 5164.10.
OK, so far so good, but what do you do with
this information. Well, one technique I like to use intra
day is to use the pivot point as a trend indicator. We already
know that the Pivot Point for the 2nd May was 5164.10 and
we will use this the next day as an intra day trend indicator.
If the price is above 5164.10 then I would
only be long and if it were below 5164.10 I would only be
short.
As price can fluctuate around any given point
I also add a further proviso. If I have support close to
5164.10 I will first wait for the price to pass through
5164.10 and support before entering short. If I have resistance
close to 5164.10 I will first wait for the price to move
through the Pivot Point and
resistance before entering long.
This method becomes even more powerful when
the Pivot Point is close to the opening price. If for example
the opening price is 5174.10, the Pivot Point is 5164.10
and I eventually go short at 5155 I can stay short the whole
day as long as it does not go above the Pivot Point.
Once in a position I normally have a very
tight stop to begin with and then will follow the market
with a trailing stop to lock in profits.
Another way I like to add Pivot Points to
my analysis is for more long-term projections. I will use
the Pivot Point of a Yearly, Monthly and Weekly chart. In
this case it would be the High, Low and Close of the previous
Year, Month and Week.
I like to think of the weekly Pivot Point
as the short-term trend, the monthly as the medium term
trend and the Yearly as the long-term trend. I find this
particularly useful in Spot Forex. If I am below the yearly,
monthly and weekly Pivot Point I know I am in a strong down
trend and I can scale into multiple positions over time.
The same holds true for long positions.
The point is there are many ways to determine
trend. You can also use Pivot Point to find potential Support
and Resistance, which we will cover in later lessons.
Experiment with Pivot Points and see if it
suits your trading style. At the very least it is always
handy to know where they are and it may help you decide
which side of the market you should be trading from.
Recommended Reading
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How To Trade The Futures Market
On the Internet it is hard to know who to believe; there are
so many people making big claims, claims that their products
simply do not live up to.
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I truly believe that any trader,
whether novice or experienced, will gain valuable and profitable
insights into trading by reading my course. Learn
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Good Trading
Mark McRae
P.P.S. - If you have any ideas for forthcoming issues just
drop me a line at info@tradingforbeginners.com
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