Indices Trading Pivot Points

Pivot points is a set of indicators created by floor traders in the commodities markets to ascertain potential turning points, also known as 'pivots'. These points are calculated to determine levels in which the sentiment of the trend could change from 'bullish' to 'bearish.' Indices traders use these points as markers of support & resistance.

These points are calculated as the average of the high, low and close from the previous session:

Indices Pivot Point = (High + Low + Close) / 3

Day traders use the calculated pivot-points to determine levels of entry, stops and profit taking, by trying to determine where the majority of other traders may be doing the same.

A pivot-point is a trading price level of significance in technical analysis of a financial market that is used by traders as a predictive indicator of price movement. It's calculated as an average of significant trading prices (high, low and close) from the performance of a market in the prior trading period. If the prices in the following period trades above the central point it is usually evaluated as a bullish sentiment, whereas if trading price below central point is seen as bearish.

The central point is used to calculate additional levels of support & resistance, below and above central point, respectively, by either subtracting or adding trading price differentials calculated from previous trading ranges.

A pivot-point and the associated support & resistance levels are often turning points for the direction of trading price movement in a market.

• In an up trend, the pivot point & the resistance levels may represent a ceiling level for the trading price. If trading price goes above this level the up trend is no longer sustainable and a trend reversal may occur.

• In a down trend, a pivot point & the support levels may represent a low for stock trading price level or a resistance to further decline.

The central pivot-point can then be used to calculate the support & resistance areas as follows:

Pivot points consist of a central point level surrounded by three support levels below it and three resistance areas above it. These points were originally used by floor traders on equity and futures exchanges because they provided a quick way for those traders to get a general idea of how the trading market was moving during the course of the day using only a few simple calculations. However, over time they have also proved exceptionally useful in other markets as well.

One of the reasons they are now so popular is because they are considered a 'leading' (or predictive) technical indicator rather than a lagging indicator. All that is required to calculate the pivot points for the upcoming (current) day is the previous day high, low, and close trading prices. The 24-hour cycle pivot points in this indicator are calculated according to the following formulas:

The central pivot can then be used to calculate the support & resistance areas as follows:

Resistance 3

Resistance 2

Resistance 1

Pivot Point

Support 1

Support 2

Support 3

Pivot Points Support and Resistance Zones

Pivot Points as a Indices Trading tool

The pivot point itself represents a level of highest resistance or support, depending on the overall sentiment. If the trading market is direction-less ( range bound ) trading prices will often fluctuate greatly around this level until a trading price breakout develops. Indices Prices above or below the central point indicates the overall sentiment as bullish or bearish respectively. This indicator is a leading indicator that provides signals of potentially new highs or lows within a given chart time frame.

The support and resistance levels calculated from the central pivot point & the previous market width may be used as exit points of the open trades, but are rarely used as entry signals. For examples, if the trading price is up-trending and breaks through the pivot point, the first or second resistance level is often a good target to close a position, as the probability of resistance and reversal increases greatly, with every resistance level.

In pivot point analysis 3 levels are oftenly recognized above & below the central point. These are calculated from the range of price movement in previous trading period and then added to the central point for resistances & subtracted from it for support areas.

Pivot Points

Pivot levels can be utilized in many different ways. Here are a few of the most commonly techniques for utilizing them:

Indices Trend Direction: Combined with other Indices analysis techniquesmethods such as oversold/overbought oscillators, volatility measurements, etc., the central point might be useful in determining the general trending direction of the market. Trades are only taken in direction of the trend. Buy trades occur only when the trading price is above the central point and sell stock trades occur only when the trading price is below the center pivot points.

Indices Price Break-outs: In trading price breakouts, a bullish buy signal forms when the trading price breaks up through the central point or one of the resistance levels (typically Resistance Zone 1). A short sell signal occurs when trading price breaks down through the center point point or one of the support levels (typically Support Zone 1).

Indices Trend Reversals: In trend reversals, a buy signal forms when the trading price moves towards a support level, gets very close to this point, touches this point, or moves only slightly through this point, & then reverses and starts moving in the other direction.

To download Pivot points Indicator:

https://c.mql5.com/21/9/pro4x_pivot_lines.mq4

Once you download the indicator. open it with the MQL4 Language Meta Editor, Then Compile the indicator by pressing the Compile Button and it will be added to your MetaTrader 4.

NB: Once you add it to your Meta Trader 4, the technical indicator has additional lines named Mid-Points, to remove the additional lines open MQL4 Meta Editor(shortcut keyboard key - press F4), & change line 16 from:

Extern bool midpivot = true:

To

Extern bool midpivot = false:

Then Press Compile button again, and the indicator will then appear as illustrated on www.tradestockindices.com website.