Pivot points are effective for determining any changes in the price movement of an asset. Pivot point is represented as a horizontal line in the candlestick chart. It shows whether there will be changes in the asset’s price in the market. In order for it to be profitable, there must be sufficient time for you to enter into the trading. If you enter the trade late, you could be lose money instead of making a profit. Those who have traded in binary options for a long period will begin to recognize the different market trends that influence the pivot points. There are several types of pivot points including woodie, camarilla, fibonacci, standard and demark pivot points.
Advantages of Pivot Points
The reason why binary options traders like to use pivot points is because it is easy to calculate. Pivot point is flexible because they can be used to determine the price movement of various types of financial assets that have trading activities including stocks, forex, and binary options. The signals generated based on pivot points are generally accurate and they are likely to occur as predicted because it is based on the information from the previous day’s condition. This is why it is often used by binary options traders to perform a technical analysis. Pivot point is the leading indicator in the market so it is easier for traders to leverage it.
How Pivot Points Works
A bullish sentiment will prevail when the asset’s price is higher than the Pivot point. In this situation, the price is expected to continue on rising upwards for some time. On the other hand, a bearish sentiment will prevail when the price of the asset is lower than the Pivot point. Seeing a bearish sentiment means that the asset’s price will keep on moving lower. You can predict a more accurate trade and make a larger profit when you know how trend for the asset’s price in the market.
The pivot points used in today’s intraday chart for time frame of 1, 5 and 15 times are based on the high, low and close of the previous day. The pivot point will remain the same during the entire day after it is set in the chart. Pivot points for time frame of 30 minutes and 60 minutes are based on the high, low, and close of the previous week. The pivot points for the 30 minutes and 60 minutes intraday chart will remain the same in the entire week until the weekend.
Pivot points for intraday chart with daily expiry time frame will rely on the data of the previous month. For example, the pivot point for April will be based on the high, low and close of the month of March. The pivot point for the daily intraday chart will remain fixed throughout the whole month. The pivot point will be recalculated on the first of next month.
How to Calculate Pivot Points
There are a few ways to calculate pivot points and the easiest way to calculate it is by using the 5 point system. When calculating pivot points, traders will take into account the 3 price points including opening, closing and high points. Besides, you also have to calculate the resistance level and support level. There are 2 resistance levels and 2 support levels that you need to calculate.
The support and resistance levels are relatively easy to understand and they are clearly marked on the chart. So, it is very easy for traders to use pivot points to determine the price direction for a financial asset with short term expiry. You can calculate the pivot point for the current day by entering the previous day’s data into a spreadsheet. Alternatively, you can use the free online pivot point calculators to find the pivot point for the current day. Newbies will find the pivot point calculator helpful as it can prevent them from keep on having to enter the equations.
In conclusion, pivot points are accurate and reliable so you should start using it in your binary options strategy. Understanding the formula for the calculation of the pivot point can help you to make a better decision when you are placing an option trade. To get the best result, you should combine pivot points with other binary options trading tools.