The Pivot Points indicator highlights areas on the chart where candles close in opposite colors. These points occur when the price shifts from bullish to bearish, or vice versa, indicating potential reversals or continuation patterns. These points are more easily seen on a line chart and represent areas where the price changes direction to create the peak formations. In essence, these pivot points mark significant levels in market structure.
Before diving into the indicator, it’s important to understand a few key concepts:
When the price is trending upward, it creates higher highs and higher lows. Each high or low acts as a pivot point. In an uptrend, the price is more likely to break the previous high (pivot point) and continue higher. This creates an opportunity to enter a buy trade when the price breaks the previous high, anticipating the continuation of the trend.
Conversely, when the price is trending downward, it creates lower lows and lower highs. Each high or low is also a pivot point. In a downtrend, the price is more likely to break the previous low (pivot point) and continue lower. This presents an opportunity to enter a sell trade when the price breaks the previous low, anticipating the continuation of the trend.
The Pivot Points indicator can also assist in identifying reversal patterns such as double tops, double bottoms, and head and shoulders, helping you determine entry points and where to place your stop loss.
It’s recommended to have two charts open side by side: one displaying a line chart and the other showing a candlestick chart, with the Pivot Points indicator applied to both. This dual-chart setup allows you to easily identify the market structure and price action as it approaches these levels. You can also add a 20-period Simple Moving Average (SMA) to both charts as a filter to help identify the overall trend. Additionally, consider adding the Relative Strength Index (RSI) to the line chart to confirm overbought or oversold conditions.
This approach can be used on any timeframe.
In an uptrend, enter buy trades when the price breaks above a previous pivot point (marked by a blue line). This signals that the upward momentum is likely to continue.
In a downtrend, enter sell trades when the price breaks below a previous pivot point (marked by a red line). This indicates continued bearish momentum.
You can also enter a trade on a candle moving toward a pivot point when you anticipate a break of structure. For instance, in an uptrend, a strong bullish candle approaching a resistance pivot point could signal a potential breakout. Likewise, a bearish candle heading toward a support pivot point in a downtrend may indicate a structural break to the downside.
Backtesting, practice, and overall trading experience will help you filter the best trades and identify high-probability setups. Additionally, using a higher timeframe candle for confluence can provide more clarity and confirmation of the directional bias, increasing your confidence in the trade.
All pivot points are highlighted on the chart. You can enter a buy trade at each blue line in an uptrend, and a sell trade at each red line in a downtrend.
- Set the number of candles to draw pivot points on.
- The level's color, width, and line style can be adjusted.
If you have suggestions, improvements, or bug fixes, I encourage you to submit pull requests. Collaboration helps make the indicator more versatile and useful for everyone.
Any trading decisions you make are entirely your responsibility. Trading carries significant risk, and you could lose all of your invested capital. Please conduct your own research and backtesting before making any trades.
A version of this indicator is available on TradingView.
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