A trader lives and dies by supports and resistances, or pivots in general. The first line pivots are usually derived from the high, low and close points from past data. Usually, they are of the previous day or week, but traders may change the periodicity to suit the trading set up. These pivots give the trader a sense of space, by given an idea as to where the present price is with respect to the previous time frame. But each day cannot be just an iteration of the previous day or week. When the market adjusts to any new news break, it could ignore recent pivots bringing into play such levels that were considered too far, until then. Hence, like any aspect in connection with technical analysis, or trading, a trader needs to approach the market like a detective, weighing each of the info available, and playing out each of the probable and less probable events. It thus imperative to bring in other elements that could make the pivot play more meaningful. Here are a handful of such elements.
Fibonacci
Fibonacci levels, now available on most trading applications’ charts allow you to see price points based on fibonacci sequences, as a projection or retracement from present levels. These serve to give an idea as to how far prices can dip, if it were to fall, or how far prices can rise, if it were to continue uptrend, thus giving not only support and resistance levels, but also point to potential reversals or strengthening of trend.
Means
Moving averages serve the same use as supports and pivots. One can calculate moving averages of different periodicities, say 5, 8, 13 as the shorter ones, and 50, 200 etc. as the ones to be used as long-term pivots. Or could even take exponential approach, to give more importance to recent data. Where MAs win over traditional supports and resistances is how they smooth out the clutter that appear in terms of too many levels, that stand in the way of giving a big picture about the trend. By having a single price point that is an average recent price data, you do not have to deal with multiple highs and lows or fluctuations.
Standard deviation
While the moving averages act as pivots, standard deviation serves to tell us how far the price has moved away from such MAs. This is especially useful when we do not have MAs close by to serve as pivots.
The distance from key MAs tell us how vulnerable the ongoing trend is, towards a reversal. In fact, this is the basis of Bollinger band, which is essentially an envelope created two standard deviations above and below a moving average.
Oscillators
Finally, oscillators (RSI, MACD, CCI etc.) help in identifying conditions of reversals. Though these do not act as pivots, they serve a very useful function while using pivots, by telling how strong such pivots could act, during different market conditions. For example, by understanding if the prevailing condition is oscillating or trending, one may choose closer or farther pivots.
Closing note
With technology bringing charts and info at your fingertips, be it a click or a swipe, there is no level, info or calculation that is beyond a trader now. The trick is with decision making… as to which signal to act on, and which auxiliary signal serves as confirmation. This is the body of knowledge that a trader needs to build as he/she matures along the learning curve.
