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Pivot Point
There are many technical indicators we have studied in Crypto Academy to assist us in making better trading decisions. Most of these indicators can be categorised as trend-based, momentum-based and volume-based indicators. Pivot point is a technical indicator that helps us identify the overall market trend. The pivot point utilizes the closing price, intraday highs and lows in its calculation to determine the pivot point levels. The main point for this indicators is the pivot point which enables traders to determine the current market trend. There is still other levels of this indicator which includes the resistance levels and the support levels. Traders keep tab of these levels as price travel through them to make trading decisions. These levels can serve as continuation or reversal signal and can also serve as entry and exit points. Let's talk about these levels in the next chapter.
Pivot Point Levels
The pivot point levels are the most important aspect of this indicator. The pivot point levels play important role in making trading decisions. The main level of the pivot indicator is the main pivot level which is the middle and the main pivot point on the chart.
The levels above the main pivot point is the levels and the levels below the main pivot point is the support levels. When the price is trading above the main pivot level, it is considered as a bullish trend. The resistance levels above the main pivot levels serve as profit point levels and also a possible reversal point in the current market trend. When the resistance level is broken, it is considered as a continuation of the bullish trend. Similarly, when price breaks the support levels, it is considered as a continuation of the bearish trend.
Overview of Pivot Point levels
Main Pivot point level (PP): This is the main level to determine the current market trend. When price is trading above the PP or is considered as a bullish signal for a buying opportunity. Similarly, when price is trading below the PP, it is considered a bearish signal for a selling opportunity.
Support 1 (S1):This is the first level of support below the PP. price tend to reverse to the opposite direction when it gets to this level. Similarly, when the S1 is broken, it is considered as a continuation of the bearish trend.
Support 2 (S2): This is the second level of support below the PP. price tend to reverse to the opposite direction when it gets to this level. Similarly, a break below this level considered as a continuation of the bearish trend.
Support 3 (S3): This is the third level of support below PP. price tend to reverse to the opposite direction when it gets to this level. Similarly, a break below this level is considered as a continuation of the bearish trend.
Resistance 1 (R1): This is the first level of resistance above PP.price tend to reverse to the opposite direction when it gets to this level. Similarly, a break above this level is considered a continuation of the bullish trend.
Resistance 2 (R2): This is the second level of resistance above PP. Price tends to reverse to the opposite direction when it gets to this level. Similarly, a break above this level is considered a continuation of the bullish trend.
Resistance 3 (R3): This is the third level of resistance above PP. Price tends to reverse to the opposite direction when it gets to this level. Similarly, a break above this level is considered a continuation of the bullish trend.
Support and resistance levels are key levels in the market. These are areas of buying and selling and always tend to reverse to the opposite when it gets to this levels. The reason is that traders see these levels as profit-taking levels. Similarly, the price can also break these levels which signal a continuation of the current trend.
Pivot Points Calculation and R1 R2 S1 S2 Pivot Levels Calculation
The pivot points can be calculated using the previous day's high, low and the close of the previous day. For example, to calculate the pivot points for Tuesday, the high, low and close of the Monday trading session are used to calculate the pivot points for Tuesday's session. The formula for calculating pivot points is illustrated below.
PP =( High + Low + Close)/ 3
Where,
- PP = The pivot point.
- High = The highest price of the previous day.
- Low = The lowest price of the previous day.
- Close = The closing price of the previous day.
Once we have calculated PP using the formula above, we can now calculate the support and resistance levels of the Pivot point indicator. The formula is illustrated below.
S1 = 2 * PP - High
S2 = PP - (High -Low)
R1 = 2 * PP - Low
R2 = PP+ (High - Low)
S1, S2, R1, R2 are dependent on PP and that is why PP must be calculated first to get the support and resistance levels.
How to Apply Pivot Points on Chart
In this section, I will be explaining illustrating how to add pivot points on ** Tradingview chart. The steps are as follows:
- On Tradingview chart, click on the indicator icon(fx) on the top menu bar.
- After that, the indicator and strategies page appear. Click on candlestick patterns and search for pivot points using the search tab as shown in the screenshot below. Notice there are several pivot point indicators on the Tradingview platform. Click on Pivot Points Standards to be added to your chart.
From the screenshot above, I have successfully added pivot points indicator to my chart. To configure the pivot point indicator, follow the steps below:
- Click on the settings icon on the indicators toolbar.
- After that, the first configuration page is the input, here a user can select the parameters that suit his trading style. The default input configuration is shown in the screenshot below.
- Secondly, the next configuration is the style. Here the user selects the labels fonts, font size and the colours of the levels. This can be seen in the
screenshot below.
In the screenshot below, I have successfully configured the pivot point indicator to my trading style by select the pivot levels and labels font colours. This can be seen in the chart below.
How Pivot Points Work
From what we have established, pivot points use the previous days high, low and closing price to calculate the pivot points levels of the next trading day. The main pivot point level (PP)/is used to determine the market trend. When price is trading above PP or is considered a bullish trend. Similarly, when price is trading below the PP, it is considered a bearish trend.
Similarly, the pivot points support and resistance levels help a trader to make trading decisions as these levels can be an entry-level or a profit-taking level. In a bullish trend, the price tends to reverse when it gets to a resistance level. Traders can look to go short when price approach a resistance level.
Also, a trader in a long position can look to take profit when price approaches a resistance level and these levels are considered reversal points. Furthermore, a break above the resistance is considered a continuation of the bullish trend.
For a bearish trend, when price approaches a support level, it tends to reverse to the upside. Traders can look for a long position when price approaches the support levels. Similarly, support levels can be profit-taking points for traders who are already in a short position. Furthermore, a break below the support level is considered a continuation of the bearish trend.
From the examples given in the screenshots above, we can how price reacted to pivot points levels and how we can make trading decisions when price comes to this levels. Notice how a break of the PP levels indicates a change of trend and also how the support and resistance levels serve as reversal and breakout levels.
Pivot Points Reverse Trading
From what we have established, the support and resistance levels of the pivot points act as reversal levels. We all know that price reverses to the upside from a support level and also, price reverses to the downside from a resistance level. Support and resistance levels are areas of buying and selling pressures and also areas of profit-taking. We will see how price react at support (S1, S2) and resistance (R1, R2) levels.
The chart above shows the 15minutes chart on XRP/USD. On the first day, price opened and was trading below PP level which indicates a bearish trend. A trader can enter a sell position to target S1 as take profit level because there are high chances price will reverse when it gets to a resistance level. After some time, price got rejected and reversed from R1. Here, traders who entered a sell position can take exit their trade and take profit. They can also look to open a buy position at this point.
After price reversed from S1 to the upside on the first day, it broke above the PP which indicates a change from bearish to a bullish trend. Traders can look to open a buy position as price broke above the PP level. Price was trading above the PP level until the second day. On the second day, price was trading above the PP and broke R1. The break indicated a continuation of the bullish trend which started the previous day. Price found resistance at R2 and got rejected. Price reversed to the downside from S2 and broke below the PP level on the next day which indicated that the trend has shifted from bullish to a bearish trend. We can see another example in the chart below.
Traders can take advantage of pivot point support and resistance levels for reverse trading to open a short position at resistance levels and a long position at support levels. Similarly, there's no guarantee price will reverse from R1, R2 or S1, S2 as the price can break out and continue going further. This is why the use of candlestick reversal patterns can be used to confirm reversals and also the use of stoploss to protect your trade against breakouts.
Common Mistakes in Trading with Pivot Points
From my knowledge of technical indicators, none of them is a complete trading system and trader shouldn't rely on only one indicator to make trading decisions. Indicators are part of a trading system and they work best when combined with other technical tools. For Pivot point trading, the common mistake a trader will make is to not use a stoploss when trading with pivot points. There's no guarantee that price will reach a support or resistance level, or price will reverse at a support and resistance level. Price can break out and continue in the original direction. The use of stoploss is necessary to protect you from losses during a breakout, especially in pivot point reverse trading.
Another common mistake is to rely on only pivot points for entry confirmation. Price sitting at support and resistance doesn't mean you should open a buy or sell position. The use of other trend-based indicators like the moving average can be combined with pivot points to confirm the current market trend. Similarly, the Fibonacci retracement tool can be combined with pivot points levels to determine possible market reversal points. Also, the use of candlestick analysis can be used to confirm a reversal when the price is at resistance or support level. This can be a bearish or bullish engulfing pattern or a hammer and an inverted hammer.
Another common mistake in trading with Pivot points is to not have a trading plan. That is an exit and entry strategy. A trader trading with pivot points should have a strategy for entry and also have an exit strategy. Since the price can reverse in any of the levels, it is advisable to target the next support or resistance level as the first profit as the price can potentially reverse at this level. Similarly, stoploss should be placed above the nearest resistance level or below the nearest support level. This can be seen in the chart below.
If a trader can avoid the above listed mistakes when trading with pivot points, I believe the efficiency and winning rate of the indicator will be improved and also losses will be minimised.
What could be the reasons for Pivot Points is Good (Pros)
The pivot point is a powerful trend-based indicator especially in a highly volatile market like cryptocurrency. The pivot point indicator makes it very easy to identify the market trends and also find areas of support and resistance levels on the chart.
Also, pivot points are very simple for a novice trader to understand and the indicator can be used in any time frame and can also suit any trading style.
Pivot points support and resistance levels help to identify potential reversal. These levels also provide entry and exit points which a trader can utilise to maximise profits.
Technical Analysis using Pivot Points Indicator
In this section, I will apply pivot points indicator on XRP/USD to indicate a trend. This analysis will be carried out using 15mins chart on Tradingview platform for the past 3 days.
From the chart above, on the first day, the price broke below the PP level at $0.90 which signal a trend reversal from bullish to bearish. After that, price continue going and broke the S1 support level. The breakout signalled a continuation of the downtrend. After the breakout, price ranged throughout the day and couldn't reach the S2 support level.
The following day, price reversed up and broke above the PP level at $0.85. Again, at this point, the trend jas changed from a bearish trend to a bullish trend. Price traded up to R1 resistance and was rejected. Price came back down to close to the PP level which is a perfect opportunity to go long on XRP. After price slightly approaches the PP level, it reversed back to the upside to continue the original bullish trend.
Price went back to retest the R1 resistance before the end of the day. On the third ( current day), price retraced back to the PP level from R1 resistance.
Again, the pivot offered an opportunity to go long again. This time, price went back up and broke the resistance at $0.96. This breakout signalled a strong bullish trend and continuation of the bullish trend. Price continued trading up to R2 resistance level and was rejected.
Price got rejected at R2 resistance level and retraced down. Price went back up to retest the R2 resistance level. From what we have in the chart above, I'm predicting price to reverse down to the R1 resistance level before the end of the day. We have a bearish engulfing candle at the R2 resistance which is a candlestick reversal pattern. The overall trend is bullish as price has R1 resistance level. I expect price to retest the R1 resistance level before the end of the day and continue bullish tomorrow.
Weekly Price Forecast for Crypto Coin: Ripple (XRP)
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Ripple is a payment settlement system with the goal of improving payment systems and facilitating the transfer of funds. Ripple aims to eliminate third party agents in the transaction process which will help to settle transactions faster. Ripple settles transaction faster than Bitcoin and Ethereum network and the transaction fees on Ripple network is relatively low compared to fees charged by traditional banks and other digital networks.
XRP
XRP is the native cryptocurrency that runs on Ripple network. XRP was designed to facilitate transactions on the Ripple network and can also be used as a transaction fee across the network. XRP run on XRP-Ledger which an open-source database that is not based on blockchain. The XRP ledger processes transactions every 3-5 seconds making transactions with XRP faster than Bitcoin and other networks.
Market Stats of XRP
| Overview | Stats |
|---|---|
| Price at time of writing this article | $0.986 |
| Rank by marketcap | #6 with a market cap of $45.73 Billion |
| Total supply | 99.9 Billion |
| Circulating supply | 46.14 Billiom |
| All-time high | $3.84 |
| All-time low | $0.0028 |
| Market dominance | 2.83% |
Why XRP
XRP is a cryptocurrency with a lot of potential in the financial industry. Transactions with XRP is settled in 3-5 seconds with a relatively very low transaction fee when compared to other payment systems. The goal of XRP is to overtake SWIFT and it has proven to be a better payment system. Currently, not all financial institutions have adopted XRP payment system and I believe the adoption will be a major development for the coin. Currently, XRP is undervalued as it is trading at $0.98 at the time of writing this article. I believe XRP will be a bigger competitor to the Bitcoin network and other payment networks when it fully gets adopted by banks to settle transactions.
Technical Analysis on XRP
In this section, I will perform technical analysis on XRP/USD Chart. This analysis will be performed using multi-timeframe analysis, candlestick analysis, chart patterns, technical indicators on Tradingview platform.
From the weekly chart above, we can see price broke a resistance level at $0.88 for the first time since May 2018. After that, price went further up to create a high at $1.93. After that, we saw a correction as price retraced back to retest the previous resistance now turned support for a continuation of the uptrend. Similarly, the previous resistance turned support is in confluence with the Fibonacci retracement golden at 0.618 which is considered a major reversal point. We hope to see price continue its bullish trend. Let's look at what we have on the daily chart.
Looking at the daily chart, we can see price is trading above the 200 period moving average which is a sign that the trend is bullish. Also, notice how price has failed to break below the previous weekly resistance now turned a support that was discussed earlier. Similarly, we have a minor level on the daily chart at $1.0. Price is expected to break above the minor resistance and retest it to continue going up to retest the high at $1.8.
Looking at the 4hrs chart, the situation is different as there is a conflicting signal. Price is currently trading below 200 period MA which is indicating a bearish trend. But we have seen the big picture from the high timeframe. Also, notice how price has failed to break the previous low at $0.7 forming a higher low. The resistance indicated is similar to the daily resistance we expected price to break for the continuation to the upside. A break above this resistance will push price to retest the high at $1.8.
From the overall technical analysis, the price of XRP is still bullish as price is currently at a strong resistance level. We expect price to break this resistance level at $1 for a continuation of the bullish run. What we have currently is a retracement of price for a continuation of the original trend. But this will be confirmed when price breaks the resistance.
Possible Low level and the level of XRP for the next one Week
From the technical analysis performed on XRP/USD, we will have a possible high level at $1.8 if price should break the resistance at $1. A break of this resistance will trigger buying pressure to push XRP to the previous high at $1.8.
On the other hand, if price rejects the resistance at $1, we might see XRP go down to retest the support level at $0.67 and this level is also a dynamic support of the 200 moving average. This will be the possible low for XRP if price rejects the resistance. This can be seen in the chart below.
In conclusion, pivot point indicators are good indicators for identifying the market trend and finding a good area of support and resistance levels. Like I said earlier, the pivot point is not a trading strategy on its own, rather it's part of a traders strategy to help identify key levels of price. Pivot point indicator will be effective when combined with other technical tools and candlestick analysis to make better trading decisions. Also, stoploss is essential in trading with pivot points as this will protect a trader against price breakouts.
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