As a crypto trader, you’re probably always looking for ways to improve your trading strategies and increase your chances of making profitable trades. One tool that many traders use is called Pivot Points.
Pivot Points are a popular technical analysis indicator that helps traders identify potential support and resistance levels in the market. These levels can be used to determine entry and exit points for trades, as well as to set stop-loss and take-profit levels.
In this article, we’ll explain what Pivot Points are and how they can be used in crypto trading to improve your trading strategies.
What are Pivot Points?
Pivot Points are a set of horizontal lines that are calculated based on the high, low, and closing prices of the previous trading day. These lines are used to identify potential support and resistance levels in the market, which can be used by traders to make trading decisions.
The most commonly used Pivot Points are the daily Pivot Point, as well as the support and resistance levels that are calculated based on it. These levels include:
- Resistance 1 (R1): the first level of potential resistance above the Pivot Point.
- Resistance 2 (R2): the second level of potential resistance above the Pivot Point.
- Resistance 3 (R3): the third level of potential resistance above the Pivot Point.
- Support 1 (S1): the first level of potential support below the Pivot Point.
- Support 2 (S2): the second level of potential support below the Pivot Point.
- Support 3 (S3): the third level of potential support below the Pivot Point.
How are Pivot Points calculated?
There are several different ways to calculate Pivot Points, but the most common method is the Standard Pivot Point formula. This formula is as follows:
Pivot Point (PP) = (High + Low + Close) / 3
Resistance 1 (R1) = (2 x PP) – Low Resistance 2 (R2) = PP + (High – Low) Resistance 3 (R3) = High + 2 x (PP – Low)
Support 1 (S1) = (2 x PP) – High Support 2 (S2) = PP – (High – Low) Support 3 (S3) = Low – 2 x (High – PP)
Once you’ve calculated these levels, you can use them to identify potential support and resistance levels in the market.
How can Pivot Points be used in crypto trading?
Pivot Points can be used in a number of ways in crypto trading. Some traders use them to identify potential entry and exit points for trades, while others use them to set stop-loss and take-profit levels.
For example, if the price of a cryptocurrency is trading above the Pivot Point and the first level of resistance (R1), a trader might see this as a bullish signal and look for an opportunity to enter a long position. On the other hand, if the price is trading below the Pivot Point and the first level of support (S1), a trader might see this as a bearish signal and look for an opportunity to enter a short position.
Pivot Points can also be used to set stop-loss and take-profit levels. For example, a trader might set their stop-loss order just below the first level of support (S1) to limit their potential losses, while setting their take-profit order just below the first level of resistance (R1) to lock in their profits.
Conclusion
Pivot Points are a popular technical analysis tool that can be used by crypto traders to identify potential support and resistance levels in the market. By using these levels to make trading decisions, traders can improve
