Hello, my name is Tito, and it is my first time here.
I have a question though. I have seen daily pivots that are very close together and some that are very far apart. Does anyone know what it means?
Hi Tito,
The general purpose of a pivot level is, as the name suggests, to identify a kind of “balance point” from the previous period¨s price range. In an uptrend, if the current price is trading above this balance point, or pivotal line then one can assume that the trend is still continuing, as vice versa.
But there are various ways of calculating this pivot point. E.g. the average of the high/low from previous period, or the ave of H/L/C or O/H/L/C and, of course, these all give slightly different values for the pivot. The idea here is to give varying weightings on the final value.
In addition to the actual pivot line, there are usually also a range of Support and Resistance lines which are also calculated on various formulas using some the values of the previous OHLC values. The values of these R1,R2,R3,R4 and S1,S2,S3,S4 etc are also different depending on the type of pivot being used.
You will find a lot of information about these on the Internet including this from Babypips:
https://www.babypips.com/learn/forex/other-pivot-point-calculation-methods
Hope this helps a bit!
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Erm…it helps a little bit. I think.
Thanks a lot for responding!
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Just ask if there is anything you don’t understand. What are your plans regarding using pivots?
I haven’t really started trading, so no plans yet. I’m just studying and familiarizing myself with the charts, I recently noticed that a chart - USD/CAD - looked different than usual (the daily pivot points look clustered together) and thought this was an indication of a change in trend or something like that.
Probably due to the range from the previous day being very small. There is only one actual pivot level (depending on the method used to calculate it). The other levels are support and resistance lines below and above the pivot line and are calculated according to the previous day’s high/low etc.
These do not themselves indicate a change of trend, rather it is the nature of the movement of the current day’s price action relative to these levels that tell you something of what is going on.
Thanks a lot Manxx. It makes sense now.
Said another way, mathmatically, which is what the daily pivots are, when the pivots are close
to each other it means there is very little movement on the daily bars and
the pattern is consolidating.
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Titou, you have made a good observation on price action. Like Manxx said this alone is not necessarily an indication of a trend change, however let me draw your attention to the fact that contraction is followed by expansion. This cycle repeats itself and can be observed on all time frames, not just the daily TF. This is an important piece of information that can be combined with others to arrive at probabilities of future price movements.
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