A single sharp turning point, known as a Pivot, that has recently formed a short-term high or low after a reasonable advance or decline, serves as strong resistance or support when price action approaches it again. Observing price action is crucial as a pivot from 1-5 days prior is revisited.
(Fig 1.1 - Pivot S&R )
Key Points:
Pivot S/R: Pivot support or resistance is generally shorter-term compared to Horizontal S/R.
Reversal Patterns: Any reversal candlestick pattern near the pivot strongly confirms a reversal.
Double Bottom/Top: A pivot support or resistance, when confirmed by a reversal, forms a Double Bottom or Double Top (refer to Chart Patterns in the Navigation Guide).
Horizontal S/R: Two pivot points at the same level can be connected and extended to form a horizontal S/R.
Let’s examine examples from both Commodity and Nifty charts to illustrate these concepts.
EXAMPLES
Consider the following example from a 2-hour (2H) Crude chart:
First Oval Highlight: Crude reverses around 6430, establishing a pivot support. The next day, crude approaches this same level and sharply reverses, forming a Bullish Engulfing pattern. This pattern strongly confirms the reversal.
Third Oval Highlight: Crude turns sharply from 6650, creating a strong pivot resistance. The following day, as price action approaches 6650 again, it briefly exceeds this level before reversing sharply, forming a Reverse Hammer.
The prior awareness of such pivots provides us with good trading opportunities once the candlestick pattern provides a confirmation.
(Fig 1.2 - Pivot S&R on Crude Futures)
Let's examine how a pivot can confirm an ongoing trend using a 2-hour (2H) chart of Zinc:
First Highlighted Oval: Zinc experiences a sharp reversal. However, the next day, the price rebounds significantly.
Third Day: As the price approaches the pivot, a strong, large green candle closes above the pivot. This is a powerful signal to go long, indicating that the price action intends to continue in the same direction.
The key rule is to exercise patience and wait for the completion of the 2-hour (2H) candlestick to gain clarity on whether to enter a trade and in which direction. If the completed candlestick does not provide clarity or signifies indecision (for example a Doji or a Narrow Range candle), just wait till the market tells you what it wants to do. This principle applies not only to Pivot S&R but to all trading decisions.
(Fig 1.3 - Pivot S&R on Zinc Futures)
In the Nifty Futures 1-hour (1H) chart example, we observe a Pivot Resistance setup at 21939 on Day 1. Following a notable decline, the price approaches this pivot level again on Day 3. As previously mentioned, it's crucial to remain vigilant for potential reversals near pivot levels.
Even before the price reaches 21939, a bearish engulfing reversal pattern forms on the third candle of the day, providing a robust confirmation of the reversal.
(Fig 1.4 - Pivot S&R on Nifty Futures)
Please click on "Next Post" to move to Congestion S&R.
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