Pivot Point Trading Strategy with Pivot Point Indicator

A Pivot point is simply the High, Low and Average of preceding x number of bars. In our case, previous x number of Daily bars. Pivot point indicators are lagging since they are naturally based on historical price points. In this particular pivot point indicator, I have used multi time frame calculations so you can plot daily or weekly pivot points in lower time frames.

Please note the pivot points plotted by the indicator is not exactly the pivot point as per definition. This is my version of forecasting significant price levels for the period ahead using moving average calculations. If you selected 1 week as the higher time frame in the settings, the levels plotted by the indicator will be the same throughout the following week.

Pivot point strategy

Entry on a confirmed bounce off of a pivot point. So for buy signal, a confirmed bounce off of any pivot point to the upside and the opposite for a sell signal. There are a couple of things to note. I specifically mentioned a “confirmed bounce,” because they are important terms of the strategy. If not the important part of the strategy. Because a break of a pivot point makes the level less-significant.

There are two types of bounces that you have to notice. Inward bounce and outward bounce. When the price is ranging between the high and low pivot levels, we will see a lot of inward bounces. Which means price moves back and forth between the pivots.

Pivot Point inward bounces

When price breaks out of pivot levels, usually comes back to test the broken pivot point. At this stage if price manages to confirm the break of an extreme pivot point with an outward bounce, we could be in for a significant trend in that direction.

Pivot Point outward bounce

Now this is not in itself a complete strategy because the pivot point indicator does not give a directional bias. Trades for both sides are profitable on range-bound market conditions.

Best pivot point indicator settings

Best settings for the pivot points indicator is totally subjective. But I have found that weekly pivots (using the exponential setting) plotted on the 1 hour time frame gives the best results.

Pivot Point Indicator settings

Please note that the “TimeFrame” setting is the higher time frame specification for pivot point calculations.

I also use 2 instances of the same indicator with 1 week and 2 week time frame settings. You are welcome to test with other time frames and settings. If you find a better combination, please don’t forget to share it in the comments section.
 Download Pivot Point Indicator 

 

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