Pivot Indicator
The Pivot Indicator for MT5 helps traders to identify reversal points and where to effectively place trades.
Forex support and resistance levels are fundamental levels that all technical traders should understand. As important as these levels are, many technical traders, especially beginners, find them difficult to place.
The problem of precise placement of key support and resistance levels is solved using the Pivot indicator.
The Foundation
The Pivot indicator for MT5 shows the levels at which a price reversal can occur. It contains 7 horizontal levels on the chart, which are potential support and resistance levels where the price movement could change.
The levels are indicated in the diagram below.
From the diagram above, the R1, R2, and R3 are the first, second, and the third resistance levels respectively.
The S1, S2, and S3 are the first, second, and third support levels respectively.
The PP (yellow horizontal line) is the pivot point line, and it is seen between the resistance and the support zones.
The Pivot Indicator also plot mid points or intermediate levels between the pivot point and support and resistance zones.
Calculation of the Pivot Indicator are done using the previous trade session’s open, low, high and close.
The Pivot Point (PP) = (close + high + low)/3.
Other support and resistance levels are calculated from the Pivot Point.
First Resistance (R1) = (2 X PP) – Low.
Second Resistance (R2) = PP + (High – Low).
Third Resistance (R3) = High + 2 (PP – Low).
First Support (S1) = (2 X PP) – High.
Second Support (S2) = PP – (High – Low).
Third Support (S3) = Low – 2 (High – PP).
One of the benefits of using the Pivot Indicator for MT5 is that it effectively helps technical traders place potential support and resistance zones.
Also, unlike most subjective technical indicators, this indicator is objective – all traders use the same method of calculating it.
This indicator is especially useful for short term traders (day traders) to take advantage of small price changes.
Forex experts and market makers also use this indicator to identify potential pivot points.
How to use the Pivot Indicator
The Pivot Indicator for MT5 can be used by both breakout and range traders.
Range traders can use this indicator to determine reversal levels and place buy or sell trades.
Essentially, like trading support and resistance levels, S1, S2, and S3 are potential buy levels, while R1, R2, and R3 are potential sell levels.
Additionally, breakout traders can also use this to identify important zones to break before placing trades.
A breakout of R1, R2 and/or R3 signals that buying momentum is high and the market is bullish. In this case, a buy order can be placed after the breakdown of these levels.
Therefore, a breakout of S1, S2 and/or S3 is a signal that selling pressure is high and the market is strongly bearish. A sell order can be placed after any of these levels are broken.
In addition to placing buy and sell orders, Pivot can also be used as take profit and stop loss levels. This indicator should be used with candlestick patterns for best results.
Conclusion
The Pivot Indicator for MT5 helps traders identify pivot points and places to effectively place trades. It can also be used to determine take profit and stop loss levels while trading.
We also recommend using it with other indicators such as RSI, MACD, etc.
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