Pivot axis point
Pivot points provide a way for the chart to determine the price direction and then set support and resistance levels. The price direction is determined by looking at the current price behavior relative to the pivot point: starting from above or below the pivot point, or intersecting in either direction during the transaction. After determining the price direction, the set support and resistance points will take effect. Although originally designed for floor traders, the concept behind pivot points can be applied in various time frames.
As with all indicators, it is also important to confirm pivot point signals from other aspects of technical analysis. A bearish candlestick reversal pattern can confirm the reversal of the second resistance level. The oversold relative strength index may confirm the oversold situation at the second support level. The increase in MACD can be used to confirm a successful support test.
Finally, sometimes the second or third support/resistance level is not visible on the chart. This is simply because their levels exceed the price range on the right. In other words, they are not on the chart.
Set tone
The pivot point sets the overall tone for price action. This is the midline of the group labeled (P). Movement above the pivot point is affirmative and shows strength. Remember that this pivot point is based on data from the previous period. It is proposed as the first important level in the current period. Movement above the pivot point indicates the force of the target towards the first resistance. Breaking through the first resistance indicates that the target price has reached the second resistance level or even higher.
Pivot Point-Chart 7
The downside is the opposite. If it falls below the pivot point, it indicates that the currency pair is weak and the target is the first support level. A break below the first support level shows greater weakness, and the target is the second support level.
Support and resistance
Pivot-based support and resistance levels can be used like traditional support and resistance levels. The key is to closely observe price movements when these levels are in effect. If the price falls to support and then strengthens, traders can seek a successful test and rebound support. It is usually helpful to find bullish chart patterns or indicator signals to confirm the rise of support levels. Similarly, if the price rises to resistance and stagnates, traders can look for opportunities for failure at the resistance and decline levels. Similarly, chart experts should look for bearish chart patterns or indicator signals to confirm a drop in resistance.
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Pivot Point-Chart 8
The second support and resistance levels can also be used to identify potential overbought and oversold conditions. Breaking the second resistance level will show strength, but it also indicates that overbought conditions may give way to a correction. Similarly, a break below the second support level will indicate weakness, but it also implies that short-term oversold conditions may rebound.
