How and why should we use pivot points?

We have been talking about pivot points earlier in the week and it is time for us to be brought back to the topic. At this point we have come to the question – how do pivot points work and where can we use them?

Well, I can tell you that pivot points are usually used as a backup support and resistance levels. They can be used as the levels from which the price bounces off to the different direction. As they are already counted by the platforms themselves it is easy for us to use them for reading the signals of the graph.

Here is the example of the movements and the signals that we might be getting from them.

Here in the picture we see the movements that I was talking about, but here I have to say that not all of the scenarios, using the pivot points are ending up according to the picture.

Trading is usually ongoing between the SS1 level and a pivot point.
Trading is usually ongoing between the SS1 level and a pivot point.

Of course, pivot points are not always that reliable per se. for example, their level can be breached on numerous occasions. And that is the exact time when we need to look for the other signs of movements of the graph.

For example, pivot points are working pretty good with the stochastic indicators, where if we see the oversold condition it is possible that the pivot point is going to serve as a resistance level and SS1 is going to be support level.

Confused? Just as you should be! That is a tough topic and we shall discuss it further!