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How to use pivot points

In Trading

A pivot point is a trading indicator that highlights key price levels in the current trading session based on data from the previous trading session.

A pivot point, which is calculated with a previous session’s high, low and close, is often accompanied by a series of support and resistance levels that are derived from the pivot point.

TradingView users can select between traditional and Fibonacci calculations, and the question of which is better is typically determined by the asset being traded.

A weekly pivot setting is calculated using the high, low and close of the previous week, and can be a great tool for cryptocurrency traders who prefer charting on higher time frames (4-hour and higher).

For crypto traders who are interested in intraday trading, setting the pivot indicator to use the daily time frame may be more useful.

Here’s what a weekly pivot indicator looks like on TradingView.

As you can see, the pivot point is designated by a P, while the support and resistance levels derived from the pivot point are shown as S1, S2, S3, R1, R2, R3, etc.

While pivot indicators should never be used to enter and exit trades without confirmation from price action and other indicators, they do provide a few key price levels to watch during the current trading session.

Let’s zoom in to the 15-minute Bitcoin (BTC) chart to take a closer look at how price reacts with the pivot point.

In the image above, there are two pivot point reactions highlighted in green.

The first reaction is characterized by long lower wicks, indicating that the bulls were interested in defending that price level.

The second reaction breaks through the pivot point, but turns out to be a bull trap after the price retests the pivot point before kicking off a bullish move to the upside.

Let’s zoom in even more to take a closer look at these two pivot point reactions.

Keep in mind most traders don't generally set entries and exits right on the pivot point – this is especially true for traders who primarily focus on low-volume crypto markets.

As you can see below, long “stop hunt” wicks are extremely common in crypto markets, so it can be a good idea to stagger orders around the pivot point once you have confirmation and confluence from multiple indicators.

In this case, BTC found strong support at the pivot point with an upward trending RSI, which indicates there may be pent up momentum to the upside.

Following the consolidation at the pivot point, BTC made a quick 0.5% move upward.

In the second example, BTC plunges through the pivot point before forming a bearish shooting star that doesn’t even touch the EMA20 line in yellow.

However, in the context of the full market structure, this breakdown didn’t have high volume support backing it.

Thirty minutes after the shooting star, BTC makes a rally up to the EMA40 line in red before retesting the pivot point – some traders would call this as a good place to enter a long position for a quick daytrade.

Following the retest of the pivot point, BTC rallied up to USD3,615 for a 1.5% scalp.

The pivot point indicator is a must-have indicator for cryptocurrency traders. It provides a frame of context and highlights key price levels.

With that said, the pivot point indicator should be used for reference only and should never be used exclusively.

This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.

WRITTEN BY

Liquid

Providing liquidity for the crypto economy.