By VIKRAM
When I started day trading in 2004, I was not aware of anything about charts or technical analysis, I was so novice that I didn’t even know about stop loss(SL).
My strategy was very weird one, I would buy stocks which opened gap down and sell stocks which opened gap up….without knowing that gap down stocks can keep going down and gap up stocks can keep going up…..If position is going against me, I would keep averaging it until I get a message from the broker that I don’t have sufficient funds to buy any more stocks….
Sometimes it worked for me and I was happy with the small profits…..but one day it happened that I shorted one stock which opened gap up at around 5 % and as it started going up, I started shorting more and more, when it reached 10 %, I was not able to square off the position when I called my broker he said stock has hit upper circuit and its freezed, and I have to wait next day until it goes for auction…My position was huge, lost almost half of my savings in that one trade.
Name of the stock which hit the upper circuit and responsible for my loss was SESA GOA (Which is known as Vedanta now)
Only after that big loss, I decided to learn technical analysis.Like most of you, I have also started with indicators like RSI,MACD,Bollinger Bands, moving averages, stochastic etc without any luck.
Then I heard a lot about price action, so I started learning it and believed that price action is ultimate in trading.
Then around 3-4 years back I saw this book called “secret of pivot boss” on some online portal and decided to give it a try, I was already happy with my price action method and when I started applying pivot points on my chart it was an ‘Aha” moment for me.
Sometime I would wonder why price reverses even though there are no support or resistance, and the reason is pivot points.
I never looked back after that, now I don’t look at any chart without pivot points, I have never tried any more indicators after this.
Price action and pivot points are my bread and butter in trading, it has become part of my life now.
[bctt tweet="Why pivot point is my favourite indicator."]
Now let’s see what these pivot points are and how one can take benefit of it,
Types of pivots
Pivot Level (PP) Resistance 1 (R1) Resistance 2 (R2) Resistance 3 (R3) Support 1 (S1) Support 2 (S2) Support 3 (S3)
Same calculation applies for weekly,monthly and yearly as well.
When you add all these seven pivot levels, you will see five parallel horizontal lines on your chart.
Pivot Points Calculation
Pivot points are calculated on previous day price movement
Below is the formula you can use to know the PP level on your chart:
Pivot Point (PP) = (Daily High + Daily Low + Close) / 3
Now you know how to calculate the PP level, let’s proceed with calculating the R1, R2, S1, and S2 pivot levels:
R1 = (2 x Pivot Point) – Daily Low
R2 = Pivot Point + (Daily High – Daily Low)
S1 = (2 x Pivot Point) – Daily High
S2 = Pivot Point – (Daily High – Daily Low)
Nowadays most of the software’s have pivot point readily available in their system and automatically plots on your chart so no need to calculate it manually to see pivots for the next day.
Pivot points are an ideal intra-day indicator for trading Stocks, Forex and commodities.
[bctt tweet="Why pivot point is my favourite indicator."]
Why I love using Pivot points?
a) Unlike other indicators, they are not lagging indicators, instead leading indicators.
b) They are static and remain at the same prices throughout the day at all time frames.
That means Nifty PP (pivot point) at 11100 and R1(R1 Pivot) at 11140, then on all time frame(3 min,5 min,15 min,1 hour etc.) it is same, it doesn’t change, unlike VWAP and other day trading indicators.
d) Many big institutes and HNIs use pivot points for their day trading, many big traders keep a watchful eye on daily pivot points, as they are considered to be key levels at the intraday timeframe.
e) Because so many people are looking at those levels, they almost become powerful support or resistance in day trading.
Some of the strategies commonly used in pivot points trading.
a) If price approaches a pivot point, and if price starts hesitating and consolidating at that pivot level and suddenly cracks in the opposite direction, you can take the trade in the direction it bounces.
b)But if the price consolidates around that pivot for a very long time and then breaks out with a big green candle, that means it’s a breakout.
c) One more way I use pivot is trading from one zone to another, if there is a breakout from one pivot, I go long for the target of next pivot and vice versa,keeping SL below the entry pivot.
Along with daily pivots, there are weekly pivots, monthly pivots and even yearly pivots, all these pivots are very important and can be plotted on the chart and can day trade effectively.
Along with these daily pivots, there is something called CPR (Central pivot range) which is equally powerful in day trading.
When there is a confluence of daily, weekly and monthly pivots it becomes much more powerful.
There are many other strategies which I developed over the period of time like, combining daily pivots with weekly & monthly pivots, combining pivots with moving averages, combining pivots with price action etc
CONCLUSION
Now it has been more than 2 years I am using Pivot Points, for me Pivot Points works very well in day trading, if someone wants to use it then it’s advised to do enough backtesting and then use it.
I backtested pivot points only on Nifty and Bank Nifty, so I don’t know how it works on Stocks or commodities, but I read in many trading books that Pivots works very well on any instruments or stocks provided it has good liquidity.
If anyone of you backtest it on stocks and come with your own observation then it will be a great help
(Whatever information I shared here is just an over view, to discuss entire pivot point trading method will take almost a Day)
[bctt tweet="Why pivot point is my favourite indicator."],
It’s a min 25k course u shared here
Thanks but it’s not a course just overview on pivots.
To discuss the entire pivot method, at least one day required.
Hi Vikram,
Nice article. I use a combination of floor pivots, CPR and camarilla pivots. It definitely is one of the easiest leading price based indicator. It does work fairly on stocks as well. Currently trying to partially / fully automate mechanical triggers using these. Would be great to further this thread.
Best.
Hi Narahari,
Thanks for liking this article.
I use both CPR and floor pivots but never tried camarilla.
Good to know its working on stocks also.
Thanks
Only very few people tell honestly how they stupidly traded in the beginning.
Great article.
I have just started reading ‘Secret of pivot boss’.
Hoping to use the methodology in coming days.
I also love the end of the day analysis you post.
Thanks
Thanks Mangesh for liking my EOD trades analysis.
After reading the secret of pivot boss, backtest it thoroughly on the charts for at least one year, then make your own strategy and then trade.
Regards
Vikram
Hi Akash thanks for liking my blog.
As I mentioned Pivots are always static on all time frame.
I am using trading view software, no idea why it’s showing differently in zerodha.
Thanks
Vikram
Hi Akash, can you send a screenshot on my mail id pivotcall@gmail.com
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