One of the fundamental trading concepts in the financial market used for technical analysis and trading is the use of pivot points. Pivot points are key price levels where most traders who are on long positions will sell, and where most traders on short positions will offload their positions to buyers.
Due to the fact that most market participants (especially the large volume traders) respect these positions, the price action of the asset tends to behave according to the description above, with uptrending prices tending to halt their advance at the next upward pivot, and downtrending prices doing same at the next downward pivot. However, if the buying pressure on an uptrend is large enough, the upward pivot could be broken to produce a breakout. A similar situation also occurs in the reverse direction if the selling pressure is large enough.
This is what makes pivot points so important. They can therefore be used for trading reversals, or for trading breakouts.
How does the Pivot Point Calculator Work?
Pivot points are historically derived from the previous day’s high, low and closing prices. There is a formula for calculating these pivot points. Some third party vendors have also gone the extra mile of devising a means of creating pivot point calculators which can be attached to the charts and are self-updating. However, anyone who has traded with these automatic pivot point calculators can easily tell you that they are not very reliable for Monday trades; the lines are too close together to make any meaningful deductions visually.
It is for this reason that the pivot point calculator on this website will help the budding trader. All that the trader needs is to get the values of the previous day’s high, low, and close prices, input the relevant values into the spaces provided and the support and resistance pivot points are displayed. The trader can then use the line tool on the trading platform to trace the pivot points on the chart. These pivot points can then be used as a benchmark for setting trades in the binary options market.
Use of Pivot Points in Binary Options
You may be asking at this point what the relevance of pivot points is to the binary options trader. In binary options, the trader is aiming to profit from one of two possible scenarios. If trading the Call/Put contract, it is pertinent to know where the pivot points are. At times, the entry price for a trade may be at one of the calculated pivot points. Whether the asset goes higher (CALL) or moves lower (PUT) will then depend on the behavior of the asset at the pivot point area.
The example shown above is a clear illustration of how the pivot point calculator widget will benefit traders. In this hourly chart for the NZDCHF asset, we see that prices were in freefall all the way from the R1, but this was arrested at the S3 pivot point, where a pinbar also formed, pointing to an upward price reversal.
Using the pivot point tool, the trader can obtain the pivot points, using the high, low and close prices obtained from the candlestick of the previous day’s price action on a daily chart. Once the values are put into the spaces provided, the line tool can then be used to trace the pivot points. Once a price action similar to what is shown above occurs, it becomes easier to predict what the asset will do next, and profitable trade decisions can be made.
Obtaining the required values for Input
For the asset to be traded, the trader should open the chart on the MT4 platform of a broker that offers currency, stock index and commodity assets, then switch over to the daily chart. On the daily chart, a single candlestick represents the price action for one full day. Move the mouse cursor over the top of the candle (for a bullish candle) or over the bottom of the candle (for a bear candle). The values for the highest, lowest, opening and closing prices will appear. Extract these values and input them into the relevant spaces in the widget, then click calculate to get the desired pivot point values.
(Risk warning: Trading involves risks)