How to Daytrade using Pivots and Support/Resistance Zones
Our support/resistance zones are called pivot points. They are based on the previous day, week, or month's high, low, and close. On large gap opening days, our software allows you to include the Globex close for futures or the current day's opening price for stocks. This will give you more accurate support/resistance zones and are the ones that most large financial institutions use on those days.
The most common idea behind using pivots is to go long above the pivot and short below the pivot. The markets often fluctuate and are very often choppy around the pivot. Many false breakouts and breakdowns happen around this level. It is often wise to wait for a trading range to develop around this main number, and to buy a breakout from the high of this trading range, and sell a breakdown below the low of the range. A stock or futures real trend strength becomes evident once it can rally above M+ or sell off below M-. Stocks that are above M+ will often continue their rally to R1 or further. Stocks that are below M- often continue to S1 or below.
|R2 Resistance Level 2 - This level often provides strong resistance. Stocks that are above and stay above R2 levels are often in strong trends and many times continue higher (that day).|
|M ++ Halfway point between R1 and R2 and moderate resistance.|
|R1 Resistance Level 1 - Stocks often reverse at R1, but if they can get through this level they will usually rally to the R2 level.|
|M + Halfway point between the Pivot and R1. This area is often the first test of the futures or stocks trend strength. When a future or stock can't break through M+, it will often reverse all the way back to the pivot level. If this area is broken through, stocks will often continue to the R1 level. I find this is one of the most useful resistance levels. Stocks above M+ are in moderate trends and your trading strategy should to be to buy all dips at support levels.|
|Pivot - Average of previous period. Strongest support or resistance. If stock or futures is above this line, wait to buy pullbacks. If stock or futures is below this line, wait for a rally to get short. Futures and stocks often oscillate above and below this number for quite some time before a breakout in one direction. It is usually best to wait for a few shakeouts and then buy a breakout from the high of the trading range, or sell a breakdown from the low of the range. Your first target for buys is the M+ level above, for shorts the target is the M- below|
|M - Halfway point between the Pivot and S1. This area is often the first test of the futures or stocks weakness. When a future or stock can't break through M-, it will often rally all the way back to the pivot level. If this area is broken down through, they will usually continue to S1|
|S1 Support Level 1 - Stocks often reverse at S1, but if they can break down through this level they will usually selloff to the S2 level.|
|M -- Halfway point between S1 and S2 and moderate support.|
|S2 Support Level 2 - This level often provides strong support. Stocks that break down below S2 are in strong trends and often continue much lower (that day)|
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