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Trading Gold Using Pivots

Pivot Points is a set of technical indicators that were created by floor traders trading the commodities markets so that to help them identify potential market turning points. These turning points were known as pivots. These pivot points are calculated in order to determine 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 points are calculated as the average of the high, low and close from the previous trading session:

Pivot Point = (High + Low + Close) / 3

Day traders use the calculated pivot points to determine levels of entry, levels of setting stop losses and levels of setting take profit. Pivot points try to determine where majority of the traders are setting their orders at the same time - for example. when all of the traders are doing the same thing.

In trading analysis, a pivot point is a significant financial market technical indicator that is used by traders to predict the price movement. This xauusd technical indicator is calculated as an average of significant prices (high, low and close) from the performance of market prices in the previous trading period.

Bullish Sentiment - If prices in the following period trade above the central pivot Point: this is evaluated as a bullish sentimentBearish Sentiment - If prices in the following period trade below the central pivot Point: this is evaluated as a bearish sentiment

The central 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 price differentials calculated from previous trading data.

A Pivot & the associated support and 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 levels then the up-trend is no longer sustainable and a retracement may occur.

In a downwards trend - the price stays below the pivot point, the support levels might represent a floor level for the price & if prices go below these 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 and 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 trading equities and futures exchange markets mainly because they provided a quick way for the traders to get a general idea of how the market was heading during the course of day using a couple of calculations. Over time, these pivot points also proved to be exceptionally useful in other 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 the pivot points for the upcoming (current) day is the previous day high, low, & closing prices. The 24-hour cycle pivot points in this trading indicator are calculated according to the following formulas:

The central pivot point can then be used to calculate the 3 support & 3 resistance zones as follows:

Resistance 3Resistance 2Resistance 1Pivot PointSupport 1Support 2Support 3

The Pivot Points indicator is illustrated below:

Gold Trading Pivot Points XAUUSD Indicator - Trading XAUUSD Charts Using Pivot Points Indicator

XAUUSD Trading Using Pivots

Pivot Point Technical Analysis

The central pivot point itself represents a level of the highest resistance or support depending on the overall market sentiment. If the market is range bound and directionless then price will often fluctuate greatly around this level until a price break-out develops.

Prices above or below the central pivot point indicates the overall sentiment as bullish & bearish respectively. Pivot Points indicator is a leading technical indicator that provides signals of potentially new highs or lows within a given chart time=frame.

The support and 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 to move up to the first and then the second resistance zone - then traders can use this second resistance zone as a good place to close their buy trade, as the probability of resistance & reversal increases greatly with every resistance zone.

In pivot point trading 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 three ways:

Trend Direction: Central pivot point is useful when determining the general trend of XAUUSD prices. Trades are only opened in the direction of the market trend. Buy trades are opened when price of XAUUSD is above the central pivot point & sell trades 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 (typically Resistance 1). A sell signal is when price breaks downwards through the central pivot point or one of the support zones (typically Support 1).

Trend Reversals: In trend reversal, a buy signal occurs 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 slightly through it & then reverses and starts moving in the other direction.

A sell trade signal occurs when Gold price moves towards a resistance zone, typically Resistance 2 or Resistance 3, and the price of xauusd touches the resistance zone or only moves slightly through it and then reverses and starts moving in the other direction.

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