## May 17, 2013

### Pivot Point

In my quest to become a better money maker, I ran across binary options. This has led me to learn much more about technical analysis as a good way to predict future price movement of underlying assets such as stocks/forex pairs/indices/commodities. In passing, I have come across something called a pivot point. When dealing with daily prices of an underlying asset, you can use these points to represent a significant level of pricing. When no news is happening, the price generally fluxes between your R1 and S1. Calculations can be seen below.
Generally speaking, when the price is trading above the pivot point, it is considered bullish and when trading happens below it is considered bearish. You can create a pivot point and the multiple levels of support and resistance that are based on this level of price with any length of chart. It could be a year or it could be on a weekly/daily basis.

The main calculation of this is: (high + low + close)/3. Your goal is to identify high probability in-the-money positions based on where the current price is relative to that line. The key is to figure out how to use this analysis to help you predict price movement better. Doing so can help make you more money in binary option trading.

You should know that most institutions and pro's watch pivot points. They are key areas where trades are entered and exited.

For the purpose of becoming a better binary option trader, we will focus on the daily pivot. The benefits of it are to identify breakouts and pricing levels of support or resistance. They can be drawn on your charts as a straight line across because they represent one number that is the outcome of a formula. Different traders use different formulas to weight their pivot point price. You can weight it by adding the opening or closing price twice in your average. From the pivot point, you can calculate general support and resistance levels for the day.

When trading on a daily basis, simply use the previous trading day's values and apply them to your chart of the current day. It is a 5-7 point system. You can setup formulas in excel to calculate all the values for you. It just requires the initial input of the previous day High, Low, and Close.

Pivot Point Formula:
• R3 = (P - S2) + R2
• R2 = P + (R1 - S1)
• R1 = (P x 2) - L
• P = (H + L + C) /3
• S1 = (P x 2) - H
• S2 = P - (R1 - S1)
• S3 = P - (R2 - S2)
P = pivot point
H = high
L = low
C = close
S = support
R = resistance

The answer to these values should be drawn on your daily charts. You should already understand the concept of Support and Resistance. When the price moves through these pricing levels, it is signaling you to pay attention for either an entry or an exit.

If the price breaks up through your Resistance 1 level and then tests it without failing, a bullish move could be happening up to your Resistance 2 level. Then, once the price hits Resistance 2, it could be time for a bear move.

Likewise, when a price starts to approach Support 1, drops below and fails to move back above it, a bearish move could be forming into the Support 2 level.

Just for fun, today is Friday, May 17, 2013. Here are the pivot point calculations for AAPL stock that should be used on Monday:

 R3 452.947 R2 443.867 R1 438.563 P 434.787 S1 429.483 S2 425.707 S3 416.627

Here is the pivot points for a yearly chart on AAPL. Funny that the S3 is negative!!! 05/12 - 05/13

 R3 1147.75 R2 827.78 R1 630.52 P 507.81 S1 310.55 S2 187.84 S3 -132.13

Also, you want to make sure that the underlying asset you use has strong volume on a daily level. That is why people use this analysis to make trades on indices/currency pairs/commodities. AAPL is an exception because it has such high consistent volume.

Using Pivot Points with Binary Options

To use pivot points to trade, just mark all these price levels on the daily chart of whatever asset you are looking at. See how the price reacts to these levels of resistance and support. Practice demo entries with binary options to see what type of success rate you get. Anything above 70% is going to make you lots of money.

With binary trading, you want to keep in mind your pivot points and use them to make entry decisions. When a price gets all the way up to R2 and seems to be stalling out, try and end of day high/low put option. If the price has fallen to S2 and doesn't want to cross it, look at making that your end of day high/low call option entry.