This lesser known indicator works brilliantly at spotting potential turning points. This indicator is more structured as opposed to Fibonacci Extension.
I wish I knew about this earlier in my trading journey to speed up my analysis.
This lesser known indicator is the Classical Pivot Points indicator. Let’s dive right in!
Classical Pivot Points Explained
What is it?
Based on mathematical calculations of past data, the Classical Pivot Points (CPP) indicator displays significant levels for the period of time you select. These levels act as support and resistance which change according to the period of time you’ve chosen.
There are 4 main time frames for the CPP indicator – daily, weekly, monthly, and yearly. You’ll discover which time frame to use in the section “3 Secrets Of Classical Pivot Points”.
There are also 5 different types of Pivot Points indicators – Classical, Fibonacci, Woodie, DM, and Camarilla. Let’s keep things simple and stick to the Classical Pivot Points indicator, shall we?
I’ll use the chart of NUAN for all the examples here.
Geek Speak (skip this section if Math gets you dizzy)
As mentioned, there’re 4 main time frames – daily, weekly, monthly, and yearly. If you are using the daily CPP, you’ll use the high, low, and close readings of the previous day’s to calculate the CPP for today.
And if you’re using the monthly CPP, you’ll use the high, low, and close values of the previous month,
Here’s a table of the calculations:
Thank goodness for technology! All you need to do is to put on the CPP indicator with the time frame of your choice. They’ll automatically be added to your charts.
3 Secrets Of Classical Pivot Points
#1 Determine Support And Resistance
Did you notice that prices tend to turn at the monthly pivot levels (ie P, R1 and R2)? Pivot levels are strong support and resistance levels.
In a strong uptrend, prices may not reach its pivot support levels (ie S1, S2, and S3).
Add price action into the bag and you’ll have a higher rate of success.
#2 Determine Entries And Exits
Zooming in, you are able to identify golden entry and exit points.
Since NUAN is in a strong uptrend and you know that prices tend to turn at pivot levels, you can safely buy when prices dip to its pivot level.
You can also safely expect prices to hit its R1 level (or even R2 level as shown in July). This means that you can set your profit target at R1 and R2 levels.
Doing the above would’ve made you $4 or 16% in just the month of July!
#3 Time Frame
“What’s the ideal time frame that I should use?” The rule of thumb is to use a higher time frame of CPP levels than the chart you use.
Eg. Use the daily CPP levels when trading the hourly charts; use the monthly CPP levels when trading the daily charts.
3 Things You Must Remember About Pivot Points Indicator
#1 CPP levels act as support and resistance
#2 You can use CPP levels to determine golden entry and exit opportunities
#3 Use a higher time frame of CPP levels than the chart you use to trade
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