When trading futures, having a strategy that combines simplicity with effectiveness can be a game-changer. That’s where pivot points come in. Originally developed for floor traders, pivot points remain a staple for modern traders thanks to their ability to highlight potential market sentiment, price reversals, and breakout opportunities.
Whether you're looking for quick intraday trades or long-term setups, pivot points are a versatile tool for futures traders.
What Are Pivot Points in Trading?
Pivot points are technical analysis tools calculated using the previous trading day’s high, low, and close prices. They provide a “pivot” or central price level, along with multiple support and resistance levels, which traders use to predict price movements for the current day.
What is the Formula for Pivot Points?
The standard formula for pivot points includes one main pivot level (P) and three levels of support and resistance.
The foundation of using pivot points in trading lies in their calculation. Based on the previous day's price data (high, low, and close) the standard pivot point formula provides a central pivot point (P), which acts as a primary level of interest for traders. From this central point, additional levels of support (S1, S2, S3) and resistance (R1, R2, R3) are calculated as follows:
Pivot Point (P) = (High + Low + Close) / 3
Resistance 1 (R1) = (2 x P) - Low
Resistance 2 (R2) = P + (High - Low)
Resistance 3 (R3) = High + 2 x (P - Low)
Support 1 (S1) = (2 x P) - High
Support 2 (S2) = P - (High - Low)
Support 3 (S3) = Low - 2 x (High - P)
These levels give you a roadmap of where the price may reverse, bounce, or break out during the trading day.
Notably, Patrick Wieland, a well-regarded figure in the trading community, utilizes the Standard Pivot Points within Trading View for his analyses. For those following his streams and looking to align with his strategies, setting your pivot points to "Pivot Points Standard" in Trading View will ensure consistency with Wieland's approach.
How to Use Pivot Points in Futures Trading
1. Identify Key Levels
The pivot point acts as the central level for the day. Prices trading above the pivot point typically indicate bullish sentiment, while prices below suggest bearish momentum.
Support Levels (S1, S2, S3): Look for potential buying opportunities if the price bounces off these levels.
Resistance Levels (R1, R2, R3): Consider selling if the price shows signs of rejecting these levels.
2. Common Trading Strategies with Pivot Points
Pivot Point Breakout
When to Trade: Enter long when the price breaks above the pivot point or resistance levels in an uptrend. Enter short when the price breaks below the pivot or support levels in a downtrend.
Stop-Loss Tip: Place your stop-loss just below the breakout level to manage risk.
Pivot Point Bounce
When to Trade: Enter trades when the price bounces off support or resistance levels.
Example: If the price pulls back to S1 in an uptrend and holds, consider a long position.
Range-Bound Strategy
When to Use: In low-volatility markets, trade between the support and resistance levels. Buy near support and sell near resistance.
Intraday Pivot Points
Best for Day Traders: Use pivot points recalculated from the prior day to identify intraday trading opportunities.
What is the Best Strategy for Pivot Points?
The best pivot point strategy depends on market conditions:
Trending Market: Pivot point breakouts work best when the market shows strong momentum.
Sideways Market: A range-bound strategy, buying near support and selling near resistance, is more effective.
Intraday Volatility: For day traders, using real-time pivot points and combining them with volume indicators can boost accuracy.
What Indicator Works Best with Pivot Points?
Pivot points pair well with other indicators to confirm trade signals:
Moving Averages: Use them to confirm the overall trend direction.
RSI (Relative Strength Index): Identify overbought or oversold conditions near pivot levels.
MACD: Spot momentum shifts that align with pivot point breakouts.
Are Pivot Points Good for Trading?
Yes! Pivot points are highly effective for:
Identifying potential reversal levels.
Setting clear entry and exit points.
Providing predefined levels for stop-loss and take-profit orders.
What is the Success Rate of Pivot Point Trading?
Success depends on market conditions, trader discipline, and risk management:
Trending Markets: Pivot point breakouts can have a high success rate, especially when combined with volume analysis.
Range-Bound Markets: Trading between support and resistance levels often yields consistent results.
Risk Management: Proper stop-loss placement is crucial to maintaining a high win rate.
What is the Most Popular Pivot Point?
The Standard Pivot Point is the most widely used. It’s easy to calculate and provides a reliable framework for support and resistance levels. Many professional traders, including Patrick Wieland, prefer using the Pivot Points Standard setting in platforms like Trading View.
Why Do Pivot Points Have Value in Futures Trading?
Pivot points are particularly useful in futures trading because they:
Reflect the market’s sentiment using objective price data.
Work effectively across different contracts, from S&P 500 futures to crude oil and gold.
Provide clarity in fast-moving markets, helping traders stay focused on key levels.
How to Succeed with Pivot Points
1. Combine with Other Tools
Use pivot points alongside moving averages, MACD, or RSI to confirm your trades.
2. Practice Risk Management
Always use stop-loss orders to protect your account.
Avoid over-leveraging, especially in volatile futures contracts.
3. Know Your Market
Different futures contracts respond uniquely to pivot levels. For example:
S&P 500 Futures: Tend to respect pivot levels due to their high liquidity.
Crude Oil Futures: May exhibit more volatility around pivot points, requiring wider stop-loss placements.
Final Thoughts
The pivot point trading strategy is a reliable tool for futures traders looking to anticipate price movements and make informed decisions. Whether you’re using it to trade breakouts, bounces, or ranges, pivot points offer clear, actionable levels for entry, exit, and risk management.
By combining pivot points with other indicators and staying disciplined in your approach, you can turn this classic strategy into a cornerstone of your trading routine. Ready to incorporate pivot points into your strategy? Set up your charts, start practicing, and see how these levels can transform your futures trading game.
