Pivot Points is a trading indicator that is used to calculate market trends over particular time frames. Generally, a Pivot Point is analyzed by taking the daily high-low and the daily ending level in the previous session. This might be changed, however, upon different time frames. So, if you were observing an hourly chart, the calculation would be the prior hour. In a daily chart, the calculated interval would be the last week.
Finding out significant Changes in Price Action
The Pivot Points are then used to find out possible changes in price action. As prices move above a Pivot Point, bullish approach is happening in the market, and prices are likely to continue trading higher. Again, when prices move below a Pivot Point, bearish approach is happening in the market, and prices are likely to continue trading lower.
Support and Resistance Levels
One of the systems that Pivot Points are mainly effective is in defining support and resistance levels. Usually support and resistance is determined using the price level of the pivot point and marking the diversity between the prices high or low happened in the previous session. If prices break through one of these levels (either to the downside or to the upside) the next levels of support and resistance will be measured using the price differences between the high and low price from the previous session.
An upside breaks of the 1st support or resistance level targets the secondary support/resistance level. An example of these levels can be perceived in the chart graphic above:
To gain a more broadly understanding of the accurate methods in calculating Pivot Points, an internet search will show up different formulas. But with smart trading features, your platform will perform these calculations for you and obviously spot them on your price chart.
As trading with binary options, our primary task is always to find a logic of which trend prices are likely to move. If we think prices will increase, we hit Call options. If we think prices will decrease, we hit PUT options. Pivot Points can be extremely helpful in these predictions, as the pivot itself gets the first level of support/resistance. When prices rise above or move below this level, we can decide our directional bias. Since the pivot level itself is the most significant price area, we can wait for prices to move sharply once this level is broke.
Therefore, for bullish trades (calls) we are waiting for prices to get higher over the pivot and continue moving higher until prices make the next resistance level. Here the trade should be closed and profits should be taken. In bearish trades (puts) we are waiting for prices to drop lower the pivot and continue moving lower until prices make the next support area. At this point, the trade should be exited.