Pivot Points Thinkorswim: A Comprehensive Guide for Traders

Pivot points are a crucial tool for traders on Thinkorswim, helping them identify key levels of support and resistance.

Thinkorswim offers a range of pivot point indicators that can be added to charts, including the popular "Pivot Points" and "Camouflage" indicators.

These indicators can be customized to suit individual trading styles and preferences.

Pivot points are based on the previous day's or week's high, low, and close prices, which are then used to calculate the pivot point, resistance levels, and support levels.

The pivot point is the central point around which the market is expected to pivot or change direction.

The resistance levels are typically set at one and two times the amount of the previous day's or week's range, while the support levels are set at two and three times the amount of the previous day's or week's range.

The pivot point is the average of the high, low, and close prices from the previous trading day. This is the foundation of the central pivot range (CPR) indicator.

To calculate the pivot point, add the previous day's high, low, and close prices, and then divide the sum by 3. For example, if the previous day's high was 100, low was 80, and close was 90, the pivot point would be 90.

The formula for pivot point is: PP = (High + Low + Close) / 3. This is a straightforward calculation that provides a clear picture of the market's previous day's activity.

In practice, traders use the pivot point to determine potential market support and resistance levels. By understanding how to calculate the pivot point, traders can make more informed decisions about their trades.

Here's a quick reference guide to calculating the pivot point:

By following this simple formula, traders can unlock the power of the pivot point and make more informed trading decisions.

Pivot points can be used in various trading strategies, including the Central Pivot Range (CPR) trading strategy, which suggests that when CPR levels make higher highs every day, it indicates an uptrend and traders should focus on long positions.

The CPR trading strategy involves using the prior day's high, low, and close prices to determine possible market support and resistance levels. Traders use CPR to determine potential market support and resistance levels.

To enter a pivot point breakout trade, you should open a position using a stop limit order when the price breaks through a pivot point level. These breakouts will mostly occur in the morning.

Pivot points can be used to set stop-loss orders, with traders placing stop-loss orders below support levels for long positions or above resistance levels for short positions.

Traders can use pivot points to set profit targets by anticipating the next level of support or resistance as the price moves in their favor.

Pivot points provide precise levels for decision-making, helping traders make informed decisions about entries, exits, and risk management.

Here are some key strategies to consider when using pivot points:

Pivot points are easy to calculate and implement, requiring only basic arithmetic and readily available price data. This makes them easy to implement in various trading platforms and strategies.

By using pivot points, traders can quickly eyeball the risk and reward of each trade, helping to build consistency and ultimately, wealth.

There are several types of pivot points that traders use, including Fibonacci pivot points, which are the most popular among traders.

The Fibonacci pivot point is named after a mathematical sequence, where each number is the sum of the previous two. It's widely used in forex and equities.

Fibonacci levels can become so widely followed that they develop a self-fulfilling property, as Katie Stockton, the founder of Fairlead Strategies, points out in her speech about the impact of the Fibonacci on gold.

Another type of pivot point is the Camarilla pivot point, invented by Nick Scott in the 1980s. It's similar to the Woodie's pivot point but has four resistance levels and four support levels.

The Camarilla pivot point uses a specific calculation to determine its levels, including R4, R3, R2, R1, PP, S1, S2, S3, and S4.

The Fibonacci pivot point is perhaps the most popular among traders. It's widely used in forex and equities.

Fibonacci levels are named after a mathematical sequence where each number is the sum of the previous two. This sequence has a simple formula, making it a powerful tool in technical analysis.

Katie Stockton, founder of Fairlead Strategies, notes that Fibonacci levels can become widely followed, leading to a self-fulfilling property. This means that traders may anticipate price movements based on these levels, making them a reality.

Woodie's pivot points place more weight on the closing price, which is a key difference from other types of pivot points.

The calculation for Woodie's pivot points is similar to the standard pivots formula, but with a slight twist.

PP is calculated as (High + Low) + (2 x Closing Price) / 4, which gives a higher emphasis on the closing price.

R2 is calculated as PP + (High – Low), and R1 is calculated as (2 X PP) – Low.

S1 is calculated as (2 X PP) – High, and S2 is calculated as PP – (High + Low).

High float stocks are still in vogue using Woodie's pivot points.

Camarilla pivot points were invented by Nick Scott in the 1980s.

They have four resistance levels and four support levels, unlike the Woodie pivot point which has two of each.

The calculation for Camarilla pivot points involves using the high, low, and closing prices of a stock.

R4 is calculated as the closing price plus the product of the high-low range and 1.5000.

R3 is the closing price plus the product of the high-low range and 1.2500.

R2 is the closing price plus the product of the high-low range and 1.1666.

R1 is the closing price plus the product of the high-low range and 1.0833.

The pivot point is calculated by averaging the high, low, and closing prices.

The pivot point is then divided by 4 to get the pivot point value.

S1 is calculated as the closing price minus the product of the high-low range and 1.0833.

S2 is the closing price minus the product of the high-low range and 1.1666.

S3 is the closing price minus the product of the high-low range and 1.2500.

S4 is the closing price minus the product of the high-low range and 1.5000.

Using pivot points in trading can be a powerful tool to help you make informed decisions. Pivot points can help traders determine optimal entry and exit points for trades, such as buying when the price bounces off a support level or shorting when it reverses from a resistance level.

To identify potential entry and exit points, traders can use the pivot point levels, such as R1, R2, R3, S1, S2, and S3. These levels can be used to set stop-loss orders and determine profit targets. For example, a trader might place a stop-loss order below the R2 level if they go long, or above the R2 level if they go short.

Here are the key steps to use pivot points in trading:

Trading Usage is where the rubber meets the road. You can use pivot points to enter a trade when the price breaks through a pivot point level. This is called Pivot Point Breakout Trading, and it's most likely to happen in the morning.

You should open a position using a stop limit order, and if the breakout is bearish, you should initiate a short trade. If the breakout is bullish, then the trade should be long. Always use a stop loss when trading pivot point breakouts.

A good place for your stop would be a top/bottom which is located somewhere before the breakout. This way your trade will always be secured against unexpected price moves. You should hold your pivot point breakout trade at least until the price action reaches the next pivot level.

In addition to breakout trading, you can also use pivot points to bounce from the pivot levels. This is called Pivot Point Bounce Trading. If the stock is testing a pivot line from the upper side and bounces upwards, then you should buy that stock.

Conversely, if the price is testing a pivot line from the lower side and bounces downwards, then you should short the security. As usual, the stop loss order for this trade should be located above the pivot level if you are short and below if you are long.

To determine the optimal entry and exit points for trades, you can use the following steps:

Using pivot points in trading can be a powerful tool, but it's essential to understand how to apply them effectively. A key concept to grasp is that pivot points can be used to identify potential entry and exit points for trades, as mentioned in Example 2.

When looking at multiple days of pivot point data, it's crucial to be aware of the key levels in the market at play, as shown in Example 3. This will help you make informed decisions about your trades.

One way to approach this is to look at the level 2 or time and sales data to see which level you need to focus on. This can be a bit challenging, but it's worth taking the time to do it right.

The best timeframes for using pivot points are typically shorter time frames, such as 1-minute, 2-minute, 5-minute, and 15-minute charts, as mentioned in Example 4. This is because the indicator is most effective when applied to shorter periods of time.

Here are some key takeaways to keep in mind when using pivot points in trading:

Pivot points are calculated based on the high, low, and close of the previous trading session. This information is used to determine the seven pivot levels that appear on the chart.

The basic pivot level, also known as the middle line, is the first step in calculating the seven pivot points. This line is crucial in understanding the pivot point system.

Daily pivot points are calculated using a specific formula, which takes into account the high, low, and close of the previous trading session. This formula is essential for traders who want to use pivot points in their trading strategy.

The seven pivot levels are parallel horizontal lines that appear on the chart, and each one is calculated using a specific formula. By understanding how each pivot level is calculated, traders can make more informed decisions about their trades.