Pivot Points and how to use them
Hello Traders, Rishi Patel here co-founder of Master the Markets, Elite Traders Conference, and Traders Open Day. A very warm welcome to our video here on “Pivot Points”.
What are pivot points? Pivot points are areas of support and resistance. Support and resistance are also called supply and demand. These are just levels of support and demand in the market. They can act as support and resistance, and as the name suggests, they just pivot around the points in the market where we expect price to be. They are used in essence as reversal points in the market; where we expect the price climb, pivot, or reverse and turn around into another direction.
For the purpose of this video; I would like to tell you about why we use pivot points, where they derive from, and what has to happen around they for price to move. This is the focus of this video. The first thing to talk about is the different type of traders that there are in the market. There are three types of traders in the market. The first one is your top step brokers. These are the guys that control the larger money and are able to influence the price movements. Generally speaking, these are the guys that start the moves off. Secondly, the next people into a trade to get price going is the experienced traders. Finally, after the experienced traders, newbies come in. Newbies are traders with very little experience, perhaps no experience at all and they get into the movement slightly later. These are you three broad categories of traders that are coming into the market at any given time.
How does this influence the movement or price in between pivot points? Let me give you an example. Let’s say, this is our daily pivot point (DPP) and we also have R1 (resistance one) which is the first major level of resistance above your daily pivot line. In between R1 and DPP we usually have a level called Mid-R1, which we are not going to emphasize to much on this video. What I want to do on this video is to show you how these three groups interact within these two different price points. You first get the top step brokers to enter at this level they tend to start the move. The move gets going, and you get your experienced traders to enter the market a little bit later. They are able to capitalize some element of the move. Then, the price continues to go up, and the newbies enter the market. Newbies enter much later on in the price movement itself. Newbies are buying the market at these levels right here. They make buy orders right here and then they must also place stop loses at this level. What tends to happen is that the step brokers have made their move and profits, and they are going to start to sell off. They will start to sell, and they will knock out the stops of these newbie traders and the cycle will continue. The newbie traders always come in towards the end of the move.
These is how the three categories of traders interact around the pivot points. This is what I wanted to illustrate to you in this video. Its very much a game of understanding the move waves and where we are in terms of a price wave and face. This is something you can only do as an experienced trader. Of course, it is about building up your knowledge and getting to that point, so you can get in early on the move. Our goal as experienced traders is to follow what the smart money is doing, and the step brokers are doing, and understanding the signals for reversals in price. As you can see here, the daily pivot point is acting as an element of support. That level of support is where the price has come in from and it would be a great buy point with a stop loss right here. That is how you can replicate what the step brokers are doing just there.
What is a way in which you can use this knowledge? For example; when taking a move short, if this is my DPP and this is my R1 and this is my level of support (S1). In a manner of using this as a trading strategy we could look to sell at the pivot point. When the price comes up and bounces off of this pivot point you could sell, ideally in a downward trend and a higher timeframe, and place your stop loss at R1 in case the price does move up. You are expecting price to move down hence the level of resistance, so in this case then you could potentially place target at S1 where you could take your money of the table. Of course, I would not use this solely to enter the market. It is best to corelate this information with other tools in order to build a crib sheet. You can check on our blog different videos that would show you how to do this.
So, this is one way you can use pivot points. Do combine this with other methods of using other tools, such as time frames, price-action patterns, fundamental analysis, or whatever crib sheet tools you use to compliment this with other techniques. Do not use this solely
That is pretty much it from me on this update until the next time. Rishi Patel here co-founder of Master the Markets, Elite Traders Conference, and Traders Open Day. As we always say; stay disciplined, follow your trading plan, and keep Trading Like a Master.