Trading Gold Using Pivots
Pivot Points is a set of indicators that were created by floor traders trading the commodity markets so that to help them identify the potential market reversal points. These turning points were known as pivot points. These pivot point levels are calculated in order and so as to identify the levels at which the market sentiment of current trend could change from bullish to bearish or vice versa.
Gold traders use these points as markers of support and resistance zones.
These pivot point levels are calculated as the average mean of the high, low & close from the previous session:
Pivot Point = (High + Low + Close) / 3
Day traders use the calculated pivot point levels to identify levels of entry, levels of setting stop losses and levels of setting take profit. Pivot point levels try to identify where majority of the gold traders are setting their orders at the same time - for example. when all of the Gold traders are doing the same thing.
In trading analysis, a pivot point level is a significant financial trading market technical indicator that's used by the Gold traders to predict the price movement. This xauusd technical indicator is calculated as an average/mean of significant prices (high, low & close) from the performance of market prices in the previous trading period.
Bullish Sentiment - If prices in the following price period trade above the central pivot point: this is interpreted as a bullish sentimentBearish Sentiment - If prices in the following price period trade below the central pivot point: this is interpreted and evaluated as a bearish sentiment
The center pivot point is also used to calculate additional levels of support & resistance, below and above this central pivot point, respectively - by either adding or subtracting the price differentials calculated using the previous data.
A Pivot & the associated support & resistance zones are often turning points for the direction of the price movement.
In an upward trend - the price stays above the pivot point, the resistance zones might represent a ceiling level for the price & if prices go above these technical levels then the up-trend is no longer sustainable and a retracement may occur.
In a downward trend - the price stays below the pivot point, the support levels might represent a floor level for the price & if prices go below these technical levels then the down-trend is no longer sustainable and a rally (pullback) may occur.
The Central Pivot Point is used to calculate the support & resistance zones as follows:
Pivot points consist of a central point level surrounded by 3 support levels below & 3 resistance zones above it. These pivot points were originally used by floor traders equities and futures exchange markets mainly because they provided a quick way for the Gold traders to get a general idea of how the market was heading during the duration of day using a couple of calculations. Over time, these pivot point levels also proved to be exceptionally useful in other trading markets as well.
One reason why these pivot points are now so popular is because they are considered to be a "leading" (or predictive) technical indicator rather than a lagging technical indicator.
All that is needed to calculate these pivot point levels for the upcoming (current) day is the previous day's high, low, & closing prices. The 24-hour cycle pivot points in this trading indicator are calculated in accordance to the following formulas:
The center pivot point then can be used to calculate the 3 support & 3 resistance zones as follows:
Resistance 3 Resistance 2 Resistance 1Pivot PointSupport 1 Support 2 Support 3
The Pivot Points indicator is illustrated and shown below:
XAUUSD Trading Using Pivots
Pivot Point Technical Analysis
The center pivot point level itself represents a level of the highest resistance/support depending on the general market sentiment. If the market is range bound and directionless then price will often fluctuate/oscillate greatly around this level until a price break-out develops.
Prices above/below the central pivot point shows the overall sentiment as bullish & bearish respectively. Pivot Points indicator is a leading technical indicator that provide signals of potentially new highs or lows within a given chart time=frame.
The support & resistance zones are used as exit points - for example, if the price is trending upward and prices are above the central pivot, then prices continue moving up to the first and then the second resistance zone - then traders can use the second resistance zone as a good place to close out their buy trade position, as the probability of resistance & reversal increases substantially with every resistance zone.
In pivot point analysis there are 3 levels commonly recognized above and below the central pivot point. These levels are calculated from the range of the price movement in the previous trading period & then added to the central pivot for resistance zones and subtracted from the central pivot for support zones.
Pivots Points technical analysis is used in 3 ways:
Trend Direction: Central pivot point is useful when determining the general trend of XAUUSD Gold prices. Trades are only opened in the direction of the price trend. Buy trades are opened when price of XAUUSD is above the central pivot point & sell trade positions are opened when the price of Gold is below the central pivot point.
Price Breakout: In a price breakout a bullish signal is when prices break upwards through the central pivot point or one of the resistance zones (mostly Resistance 1). A sell signal is when price breaks downwards through the central pivot point or one of the support zones (commonly Support 1).
Trend Reversals: In trend reversal, a buy signal occurs and happens when the price moves towards a support zone, typically Support 2 or Support 3, & the price of gold touches the support zone or only moves a little through it & then reverses and starts moving in the other direction.
A sell trade signal occurs and happens when Gold price moves towards a resistance zone, typically Resistance 2 or Resistance 3, and the price of xauusd touches the resistance zone or moves only a little through it and then reverses and starts moving in the other direction.
Get More Lessons & Courses:
- Forex DeMarks Projected Range EA EA Setup
- Setting Stop Loss FX Orders Using Support Resistance Levels
- How Do I Place GBPSEK Chart to MT4 Platform Software?
- Morning Star Setup, Evening Star Setup & Bullish Engulfing & Bearish Engulfing Candles
- Forex Trader Tutorial Lesson: Study Beginner Trader Trade Guide Lesson
- Where Do You Find Crude Oil Symbol in MT5 Platform?
- Bulls Power XAU USD Indicator Analysis in Gold
- How to Use MT5 Rate of Change, ROC Indicator
- IT40 System
