How to Use Pivot Points (SR Lines) for Day Trading

Vivek RattanCeTA, MBA

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Pivot Points⇨ Provide good reference points at which to enter or exit.

⇨ Gives an indication of the market bias. (Bullish, Bearish, Neutral).

⇨ Can be used to identify future support and resistance levels.

⇨ Are used to identify trading ranges.

⇨ Can be used for any time frame.

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Pivot Points

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Pivot Points

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Advantages of Pivot Point Trading⇨ Provides key inflection points.

⇨ Which are used to determine when to enter the market, place stops and take profits.

⇨ Helps minimize risk.

⇨ Can predict next day trading ranges.

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Terminology⇨ Pivot : is a level at which the current market direction for the

day changes. Market trading above pivot point is seen as

bullish whereas trading below the pivot point is seen as

bearish.

⇨ Resistance : is a point where sellers start to outnumber

buyers.

⇨ Support : is a point at which lots of buyers tend to enter the

stock.

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Pivot Points / SR Lines

"Above DP : Bullish Sentiment"

"Below DP : Bearish Sentiment"

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Role Reversal

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Role Reversal

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Pivot Points CalculationDerived from previous day's High, Low & Close price values.

R2 = Pivot + (High - Low)

R1 = (2 * Pivot) – Low

DP = (High + Low + Close) / 3

S1 = (2 * Pivot) – High

S2 = Pivot - (High - Low)

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Placing Stops & Targets

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Pivot Points can be used by :

Range Breakout and

Trend traders.

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Range Trading with Pivot Points

SELL, if the price is near resistance level, & place a stop just above the resistance.

BUY, if the price is near support level & place a stop just below the support.

Fast, easy & effective way to determine your Risk-Reward ratio.

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Range Trading with Pivot Points

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Range Trading with Pivot Points

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Breakout Trading with Pivot Points◉There are mainly two approaches to

trading the breakouts :

◉ Initial Breakout

◉Correction

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Breakout Trading with Pivot Points

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Breakout Trading with Pivot Points

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Breakout Trading with Pivot Points

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Placing Stop with Initial Breakout

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Placing Stop with Initial Breakout

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Placing Stop with Initial Breakout

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Breakout Trading with Pivot Points

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Breakout Trading with Pivot Points

BUY

BUY

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Breakout Trading with Pivot Points

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Breakout Trading with Pivot Points

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Placing Stop with Correction

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Placing Stop with Correction

SHORT SELL ??

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Placing Stop with CorrectionCORRECTION

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Trend Trading with Pivot Points

DP

R1

R2

S1

S2

Prices opened above DP & stayed above it the whole day.

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Trend Trading with Pivot Points

Prices opened below DP & S1, signifying bearish sentiment.

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Trend Trading with Pivot Points

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High Probabilistic Setup using Candlestick Pattern & Pivot Point

BUY HERE & PLACE STOP BELOW DOJI.

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High Probabilistic Setup using Candlestick Pattern & Pivot Point

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Conclusion⇨ Think of pivot points as a new weapon in your trading arsenal.

⇨ Use them to : ◉ predict the next day's trading range◉ get an idea of entry / exit points ◉ know the day's bias

⇨ Use pivot points along with other technical analysis tools such as candlestick, MACD, RSI, etc.

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Reference◉Book : "Candlestick and Pivot Point

Trading Triggers" by John Person

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That's it !Questions?Suggestions!

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