At XForexTrade.com, we continue to provide some good binary options education every week. Today we get started on a strategy that we will discuss in detail in the weeks ahead: Pivot Points.
Market makers and professional traders use pivot points to spot likely support and resistance areas. Essentially, a pivot point together with its support and resistance levels are zones at which trajectory of price movement can potentially change.
Pivot Points are a preferred tool for traders
The reason why pivot points are so appealing is very simple: pivot points are objective. There is actually no discretion on the part of the trader when determining these points as opposed to a lot of the other indicators. However, pivot points share a lot of commonality with strategies we’ve discussed already like the Fibonacci tool.
Basically, a lot of market participants have noted these levels, and so they become sort of self-fulfilling.
But then there is the big difference when it comes to picking the key points in Fibonacci which are Swing Highs and Swing Lows. There is a lot of subjectivity in selecting these zones. On the other hand, pivot point calculations are generally done the same way and yield the same result. We will explore the calculation of pivot points in our next binary option strategy article.
Pivot points are best used by short-term traders who are looking to rake in the dough from small changes in price. Again, like in the case of the often brought up support and resistance levels, traders can look to buy calls or puts on the bounce or the break of these particular levels.
Range-bound traders locate reversal areas with pivot points
Pivot points are great for these types of traders as they can then identify points to make buy and sell orders. Here is an example of pivot points on a random 1-hour chart.
The chart shows the horizontal support and resistance levels which are conveniently marked out for you.
What do the acronyms stand for?
PP – Pivot Point
S – Support
R – Resistance
However, S1 and S2 or R1 and R2 don’t necessarily have to be support and resistance. More on this later. As we go along with our strategy articles, you will be shown the various kinds of pivot points and how to compute them.
Pivot points are also a great tool for breakout traders to find important levels that could likely be broken. Subscribe to the XForexTrade newsletter to learn more and add the pivot points to tool to your binary options arsenal.