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Trading by points Pivot (Pivot) – this is one of the simplest, but at the same time the most effective rading strategies . These levels are often used as the basis for many other methods of technical analysis , and are widely used in the institutional environment, which already speaks of their importance as an analysis tool.
We will analyze what is the basis for calculating pivot points and how to trade binary options by Pivot levels.
Currency pairs: Any
Timeframe: M5 and higher
Expirytime: 1 candle
Trading time: 24/7
Pivot levels or reversal levels are potential price reversal points that are displayed on the chart as a combination of support and resistance lines .
In total, the indicator of pivot levels displays seven pivot lines on the chart – three support lines, three resistance lines and the average line (basis of calculation) Pivot. The main line (Pivot) is calculated as the average between the high, low and the closing price of the previous period – (High + Low + Close) / 3.
Resistance lines are calculated as follows:
- R1: (2 * Pivot) – Low;
- R2: High + Pivot – Low;
- R3: High + 2 * (Pivot – Low).
By analogy, support lines:
- S1: (2 * Pivot) – High;
- S2: Pivot – Hi + Lo;
- S3: Low – 2 * (High – Pivot).
Pivot lines provide an indication of the expected direction of price movement by defining overbought (above the Pivot base) and oversold (below Pivot) zones on the chart. Also, Pivot lines are excellent support / resistance levels, which allows you to find the moments of completion of rollbacks and trend reversals.
Where to get the Pivot values
The ability to automatically calculate Pivot points is available in almost any terminal with advanced technical analysis capabilities.
The TradingView web terminal has a standard indicator for displaying pivot levels. To add an indicator to the chart, go to Indicators and enter Pivot Points in the search bar. Then select Pivot Points Standard from the list.
But there are also many third-party services where the calculated level values are regularly published. For example, a similar service is provided by the Investing website . The list of levels can be opened by going to the Technical – Pivot Points section.
You can trade Pivot Levels in two different ways – by breaking the level in the direction of the trend and by returning to the middle line (Pivot). The second trading option is somewhat simpler and does not require any complex market analysis from you. That is, we will trade when the price enters the overbought / oversold zone, for a rollback to the Pivot line.
For example, we will use the table of pivot point values on the Investing website. Working timeframe – 5 minutes. This is important, therefore, first indicate the required period in the table. To display new values, the page with the table must be updated manually, for example, by pressing the F5 key.
In the broker’s terminal, we also open a candlestick chart with a period of 5 minutes. Then we wait for the opening of a new candlestick , and compare its price with the price of the middle line Pivot. If the price in the terminal is higher (more than 5 points), buy a Put option with an expiration of 5 minutes. If it is lower (by 5 points or more) – buy the Call option. That is, the main task is to determine if the price is in the overbought or oversold zone and enter in the corresponding direction.
For successful trading, we need a relatively calm market, so we stop trading at the time of news and other important events. Alternatively, we check the economic calendar in advance , excluding from trading half an hour before and after the news release.
But, in order not to miss important news, it is best to set up automatic notifications. On the myfxbook website , for example, you can set up an email alert for a specified period in minutes.
In total, the procedure is as follows:
- We are waiting for the opening of the candle and remember the opening price;
- Updating the Investing website with a table of Pivot values;
- Open a Put option if the candlestick’s open price is 5 points higher than the Pivot value. On the contrary, we open a Call if the opening price is lower than the average Pivot line by at least 5 points.
Let’s look at a real-world example. The opening price of the current candlestick for the GBPUSD pair is 1.3130.
At the same time, the Pivot level is 1.3089. It turns out that the opening price is 41 points above the average Pivot line, which means the price has moved into the overbought zone – open the Put option.
The expiration time is equal to the value of the working timeframe, in our case – 5 minutes. You can choose a different timeframe for yourself if you see fit. But do not forget to change the expiration time to the appropriate period.
Pivot levels have been used in trading for a long time, and have already become one of the traditional methods of analysis in financial markets, allowing time to determine the moments of reversal and completion of corrections on the chart. The simplicity and efficiency of the method fit well into binary options trading. So take your time and try this strategy.