Wednesday, July 18th, 2013 by James Franklen
Pivot Points are the technical indicators used to measure the market trend over specific time frames. Calculation of Pivot Points is done by taking the previous high, low, and closing prices of the assets. Support and Resistance level are part of the Pivot Point trading strategy. The trading range between high & low prices and the pivot point represents the first Support and Resistance level. The second Support and Resistance levels are calculated by using the entire width between highs and lows of the asset prices for the used time frame.
Understanding the market behavior for future prices is extremely beneficial in Binary options trading. Pivot Points enable you to forecast the price movement, hence providing you a chance to make big profits. Since binary options is all about guessing the future prices of the assets, by using Pivot points, you can guess the bullish or bearish trend of the market.
Support and Resistance Levels:
As discussed above, Pivot Points help in determining the Support and Resistance levels. There are many cases where support and resistance level is calculated by making use of Pivot price level and difference between the high or low prices, recorded in the previous session. It is possible that prices breach through these levels. In that case new Support and Resistance levels take place. The following image clearly demonstrates the breaching of the prices through Support level S1 and reaching the second Support level S2, thus creating another Support level. Similarly, the prices can cross the Resistance level R1 and Resistance level R2 can take place. There are different formulas available to calculate the Pivot points, but the advance trading platforms do this job automatically for you.
Once all the required information is gathered, it’s time to make use of this indicator to exploit the best trading opportunities. In binary options, traders are always keen to know if the price of an underlying asset increases or decreases. Once they get a hint of the direction, they go for CALL or PUT option. Pivot Points can be very handy in forecasting these directions. Pivot Point area is considered as the most important region. If this level is breached, prices are expected to move sharply. Look where the market opens. The market has a strong affinity towards the center of Pivot Point. In normal conditions, the market prices are expected to stay in between S1 and R1. Any news affecting the market can take the prices from S1 and R1 to S2 and R2, or even farther.
- If the market opens above the central Pivot Point, it’s the sign of Bullish dominance. In this case, we should look for buying opportunities. However, if the market opens below the central Pivot Point, look for selling opportunities.
- If the market opens above the Resistance level (R1) or below the Support level (S1), it’s a distant opening. In such market openings, it’s very difficult to trade. Such conditions are not recommended for new traders.
Pivot points are short term indicators and these levels change after the end of each session. Therefore, traders are advised to keep all trades within these time frames, since price activity will become less predictable in the subsequent time periods.
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