What is Pivot Point Strategy?
If you are a binary options trader, you might have heard about the pivot point strategy. This strategy is based on trading support and resistance levels, which are calculated using the previous day’s price data. Pivot points are used to determine the overall trend of the market and to identify potential entry and exit points.
How to Calculate Pivot Points?
There are different methods to calculate pivot points, but the most common one is the standard method. To calculate pivot points, you need to use the high, low, and close prices of the previous day. Here is the formula: Pivot Point (PP) = (High + Low + Close) / 3 The support and resistance levels are calculated using the following formulas: First Support (S1) = (2 x PP) – High Second Support (S2) = PP – (High – Low) Third Support (S3) = Low – 2(High – PP) First Resistance (R1) = (2 x PP) – Low Second Resistance (R2) = PP + (High – Low) Third Resistance (R3) = High + 2(PP – Low)
How to Use Pivot Point Strategy?
To use pivot point strategy, you need to identify the pivot point, support, and resistance levels for the current day. You can then use these levels to determine your trading strategy. Here are some tips to use pivot point strategy: 1. Buy when the price is trading above the pivot point and the first resistance level. 2. Sell when the price is trading below the pivot point and the first support level. 3. Use the second and third support and resistance levels as potential exit points. 4. Keep an eye on the price action around the pivot point, as it can indicate a potential trend reversal.
Advantages of Pivot Point Strategy
The pivot point strategy has some advantages over other trading strategies. Here are a few: 1. It is easy to calculate and understand. 2. It can be used in different timeframes, from short-term to long-term trading. 3. It can be used in different markets, including stocks, forex, and commodities. 4. It can be combined with other technical indicators to increase its accuracy.
Disadvantages of Pivot Point Strategy
The pivot point strategy also has some disadvantages that you should be aware of. Here are a few: 1. It is based on historical data, which may not always reflect the current market conditions. 2. It may not work well in highly volatile markets. 3. It may not work well in markets that are influenced by news or events. 4. It requires some experience and knowledge to use effectively.
Conclusion
The pivot point strategy is a popular trading strategy among binary options traders. It is based on calculating support and resistance levels using the previous day’s price data. While it has some advantages, it also has some disadvantages that you should be aware of. To use pivot point strategy effectively, you need to have some experience and knowledge of the market.
