How to use Pivot Points for Range Trading

How to Calculate Pivot Points?

Pivot points are calculated by taking the previous session’s open, close, high, and low points. This is a little confusing for some people because they know that the market is a 24-hour market, and they aren’t sure when the previous session even is (by definition).

Fortunately, the universal way that this is determined is by using the closing price from the New York session at 5 PM New York time. This frame of reference is used by traders around the world, and it is helpful for them to see how their trades interact with the market based on a specific time frame that they can use and get benefits from.

Can You Use Pivot Points to Trade in Either Direction?

Yes, you can use pivot points no matter if you intend to trade in a bullish or a bearish direction. In fact, you should be using them in both directions because you do not want to miss out on potential opportunities to make money from your trades.

How to use Pivot Points for Range Trading

The most straightforward way to use pivot points to your advance is to use them as you would resistance and support levels.

They can be highly useful for you to find where there are areas of support or resistance in a given currency pair. At the same time, you might find some benefit to using them in terms of how to trade in a ranging market.

If you see that a market is ranging — not in a defined trend — you may be tempted to trade in it, but you may also be afraid to do so in some respects. The fear comes in because you are worried that trading in a ranging market may mean that you get your investment down on the wrong side of the trade. It is easy to get yourself caught up in predicaments like this.

If you insist on trading a ranging market, pivot points can give you clues on the range that the price action might be bouncing between.

In the chart, you can see that price is bouncing off of various support and resistance levels.

When the price hit the S1 level just before 11 AM, that could have been an opportunity to take a BUY trade with a stop-loss set just BELOW the S1 line.

When the price hit the R1 level at 12:30, that could have been an opportunity to take a SELL trade with a stop[1]loss set just ABOVE the R1 line.

In the above examples, a good take-profit zone to target would be the next corresponding levels. The Pivot line for both the SELL trade and the BUY trade would have been a good target.