How to use Daily Pivot Points for Scalping Forex
Hello traders, welcome to the scalping course and the second module: “Getting Started: The Backbone of a Scalper.” In this lesson, we’re going to talk about the daily and weekly pivot points and how to use the confluence between the two of them to get zones of high volume that you can use for your scalping interests. Now, let’s start by first defining what a pivot point is.
Well, pivot points identify the average high, low, and closing price for the previous session or the previous date. Of course, if you are using daily pivots, the calculation behind the pivot points uses the previous daily high, the previous daily low, and the previous daily closing price. And when we’re using the weekly pivots, it uses the previous weekly high, the previously weekly lows, and the previous weekly closing price.
Okay, now we don’t need to go about the actual formula and the actual calculation behind the pivot points. We just need to understand how they are calculated, and the calculation gives you a pivot level, or a center pivot, which acts as the bull-bear line for the day. And this is very important. When price is trading above the center pivot, it means that the immediate trend of the market is a bull trend. And when it’s trading below the center pivot, it means that the immediate trend or the immediate pressure is a bear pressure.
Now, further pivots are printed as areas of support and resistance above and below the center pivot. These areas also act as support and resistance and you will find a heavy volume there. And the reason you will find a heavy volume there is because a lot of traders are looking at these pivot levels and are putting their orders around them. And as scalpers, we are going to try to take advantage of this information and try to get a better risk-to-reward scenario or a better risk-to-reward setup around these pivot areas.
Now, how do we use pivot points for prediction? Since the center pivot acts as the bull-bear line for this session, you can expect high volume around this price level. Now, let’s imagine that you’re trading the US dollar, and the center pivot is around 1.2100, and price is trading below the center pivot throughout the session. But then we have a very strong spike that reaches this pivot level. You will see that there will be a very strong struggle between bulls and bears around this line, and if price rejects this center pivot, it means that the bears have won and you should look for short positions. But if price crosses this pivot level, it will mean that the bulls have won and that you should be looking now for long entries.
And this is how you use the center pivot. You just use it for information, and of course, you can use it for entries as well. If price moves above the center line and we are in a downtrend, expect the up levels of resistance to be highly tested and can offer great opportunities for a short position. The same goes for uptrending markets and the support levels from the pivot calculation.
Now, this means that if we take the previous example and price is trading below the pivot level and price breaks through this pivot level, you can find short opportunities at the daily resistance levels one, two, and three. And the same goes on the other side of the market.
Now, we are going to use the weekly pivot levels not for immediate scalping, but for further confirmation. And how are we going to use the weekly pivot levels for confirmation? Well, that’s easy. When a weekly level confluences with a daily level, you can expect an even higher amount of volume trying to reject it. And this is because the daily levels are closely watched by day traders and scalpers, but the weekly levels are very well-watched by medium traders and screen traders. So you will have both of them trying to reject these levels. So you will have even more volume around them.
And this is why we are going to use both of them in our scalping. We are going to use the daily pivots as areas that we should be looking at. And if we have a weekly level that confluences with a daily pivot level, we are going to be watching it even closer.
Now, we’re going to go to a chart, and I’m going to show you how the pivot levels work and how they might confluence on your chart. Okay, so this is the ES 10-minute chart and you can see that we have the weekly and daily pivots. The daily pivots are a straight line and the weekly pivots are a dashed line. And you can see that price was trading below the daily pivot, then broke with the daily pivot and found support at the daily pivot.
And this is what we’re going to try to find on our charts, okay? First of all, with the pivot levels, we’re going try to find the immediate direction. Even though we were on a downtrend and we were looking for short positions, right here you can see that we started to make higher lows, and again, higher lows. When we broke with the daily pivot, you can take a lump position here at this round number, the 2048, and take a long position for a nice scalp of 6.5 dollars, which is a very nice 26 tick scalp on the ES.
Now, in this example, we don’t have a confluence between the monthly pivots and the daily pivots, but let’s try another instrument and let’s see if we can get a better example of what confluence looks.
All right, so this is the gold futures chart, and you can see right here that we have confluence between a daily support one level and a weekly resistance one level. Now, we are trading below the pivot point, which means that we are going to be looking for short opportunities. When price hits these levels, you can see that well, we have price tests in these levels and getting rejected a lot. So you can take a short position right around these levels, okay? And you can aim for the next pivot point, which would mean that you would have made around $4 on the trade, which is nice because if you exceed the range on which gold was trading before, our trade completed it.
So you can see that pivot points are actually very important tools when you are scalping. And of course, this is just the backbone of the scalper. We are going to teach you how to put everything together further on this course. But first of all, you need to understand how to use each and every single one of these indicators and these techniques, and then you will learn how to take them and make a system of your own. But when you have a confluence between the weekly and the daily pivots, you should look closely for an opportunity. And in this case, because we are trading below the pivot point, it’s an excellent opportunity to go short because your risk to your reward is better than a five to one.