Although binary options trading is one of the easiest forms of trading in the financial markets, it’s not always easy to determine when the price movement of an asset will change direction. At one point, the asset might be moving in a desirable direction but the trend mcould change, exposing you to imminent risk.
How to Use Pivot Points to Identify Price Reversals
Wouldn’t it be plausible if you could easily identify potential price reversals and thus develop a trading strategy that will leverage the changing trends? That is what pivot points are for.
What is a pivot point?
Pivot points are key price levels where most traders who are on long positions will sell, and where most traders on short positions will offload their positions to buyers.
So, a pivot point is a price level indicator that shows the point at which the movement of an asset will potentially change. Traders use this indicator to predict the direction of the price movement. In turn, depending on the direction the asset is moving, you can execute profitable trades or alleviate potential losses.
So for example, say the price of the US Dollar against the Japanese Yen is on an upward trend. If it reaches a pivot point, this could be an indication that this upward trend will soon be giving in to a downward trend. The opposite is true—if the US dollar was on a downward trend, it could reverse to an upward trend if the price reaches a pivot point.
Compared to other types of technical indicators, pivot points are quite easy to calculate and understand. Pivot points can also be used when trading all type of assets including currency pairs, indices, commodities, stocks, binary options and many other financial assets. Accuracy is important in predicting the price movement of an asset. Pivot points are quite accurate in identifying potential price reversals, making them useful technical indicators.
How are support and resistance levels used with pivot points?
Support and resistance levels indicate points at which an asset will potentially be unable to move past. The support level may prevent the price of an asset from falling or it may be unable to offer this requisite support, causing a decline in the asset’s price. The same applies to resistance levels; for example, the price of an asset manages to cross through the pivot point in an upward trend but it could be slowed down by the resistance level.
Support and resistance levels are calculated by applying the pivot point price level and identifying the difference between high or low price levels. If the price of the underlying asset breaks through either the support or the resistance levels, the next support and resistance levels will be calculated by applying the price distance between the previous high and low levels.
Trading binary options with pivot points
It is important to note that pivot points are an indication of price movement for an entire day, as opposed to hourly or minute-by-minute indication. Traders often use the first and second support and resistance levels as indicators to execute a trade. Say for example that an asset moves beyond the first level of resistance in an uptrend and then has a hard time crossing the second level of resistance. This could be an indication of a price decline, which could see the price of the asset move further below the pivot point. This could be a feasible point to profit from the trade.
Pivot points are undoubtedly valuable in identifying when to enter into a call or put option position. Understanding the market behavior for future prices is extremely beneficial in Binary options trading. Since binary options is all about guessing the future prices of an asset, by using Pivot points, you have a real chance to make big profits. However, they should only be used as short-term indicators because each trading session has its own trading pivot points.
Pivot points online calculator
Find here a complete Pivot Points Calculator with formulas, guide and instructions.