Being a comparatively new market category, trading crypto has abundant technical terms. Still, crypto trading has many resemblances with trading equities or stocks. Both are investable but have various risk levels. Also, investors of these markets rely on several variables reading to measure the overall trend.
However, the pivot points are one of those variables. Investors enumerate these points based on the high, low, and closing prices of past trading sessions to find out if the investment should be stopped or doubled up.
What is the pivot point?
It indicates the market’s overall trend with a simple calculation of the average of the high, low, and closing prices from the last trading session. The market is deemed to be depicting bullish sentiment when the market runs above the pivot point the next day; otherwise, it happened to be time for pulling up and reconsidering the investment strategy.
However, pivot points can portray a comprehensive picture of an asset if applied with various technical tools. It also depicts the support and resistance levels inside a short-term trading session.
Top five tips for trading with a crypto pivot reversal strategy
So now you have some idea about the pivot point trading indicator. Let’s dive into how you can utilize the pivot point indicator to identify the trend reversal points in the crypto market.
Tip 1. For going long
If you want to go for a long trade on any crypto, you have to note some key rules. First, identify the current market trend. If the price is residing below the pivot point, it means that the ongoing trend of the market is bearish. So, please wait for a bullish breakout above the pivot point, which will indicate that the market may be reversing its momentum from bearish to bullish.
Why does it happen?
If the price is residing above the pivot point, then it mostly indicates traders to go for long near the pivot point line as the bulls are gaining strength or indicating a clear bullish reversal.
How do you avoid the mistake?
It is essential to know before going for trading when you should not trade. One mistake can blow your entire trading account. Therefore, going for long trade when the price breaks above the pivot point impulsively indicate a strong bullish reversal. Also, always use proper stop loss based on your risk percentage.
Tip 2. For going short
First, identify the ongoing market trend. If the price is residing above the pivot point, it means that the ongoing trend of the market is bullish. So, wait for a bearish breakout below the pivot point, which will indicate that the market may be reversing its momentum from bullish to bearish.
Why does it happen?
If the price is residing below the pivot point, then it mostly indicates traders to go short near the pivot point line as the bears are gaining strength or indicating a clear bearish reversal.
How do you avoid the mistake?
Go for a short trade when the price breaks below the pivot point impulsively, indicating a robust bearish reversal. Also, always use proper stop loss based on your risk percentage.
Tip 3. Using the 20 EMA with pivot point indicator
You can use other indicators like 20 EMA along with the pivot point indicator to increase your trade accuracy. It will help you to identify the proper reversal points. For instance, when the price breaks above the pivot point and the dynamic level of 20 EMA are residing below the price. It indicates that the trend is reversing; you can go for long.
Why does it happen?
There is no surety that the pivot point will always provide you with accurate trend reversal signals. Therefore, you should always use other indicators along with the pivot point to confirm the long and short signals.
How do you avoid the mistake?
The pivot point indicator helps traders to identify the trend reversals. However, these signals may become false sometimes. So, you may need to add other indicators with the pivot point to identify the proper trend reversal.
Tip 4. Risk management
Stay away from being emotionally affected. The crypto space is developing rapidly, and most traders nearly forget the risks of the crypto market. So, in terms of managing the risks, determine the trade size. Always try to trade with a position size proportioning the risk level to your comprehensive portfolio size and trading strategy, along with rational thinking and firm strides.
Why does it happen?
Pivot points are best for intraday trading, and the calculation is straightforward. Being based on a simple calculation, pivot points are not compatible with the position or swing trading. Disregarding pivot levels is a common trait of the price. So, the price may not assuredly reverse or make any major directional move around this kind of the deliberated point. The significant deficiency is that the price fluctuations are too outspread to give meaningful trading signals during the higher volatility.
How do you avoid the mistake?
To keep away from mistakes, define the maximum percentage of risk per trade on your whole capital. Afterward, deciding which trade should be less than 2% of total trading capital, utilize Pivot R1 or S1 as a target to enter a trade breakout near P.
Also, the distance between stop-loss and the entry must be impeccably less than half of the target price. Regardless of having an acute likelihood of success while targeting S1 or R1 in a breakout trading from P, it significantly ensures substantially higher targeted profit than the taken risk.
Tip 5. Choose when not to trade
Choosing when to trade and withdraw is a crucial strategy. In most cases, novice traders turn out to be confused and inclined toward consecutive losing trades. Afterward, they become anxious and hastily endeavor to recover the losses but end up in more improper trades and ultimate losses.
Why does it happen?
While many positions are disproportionately opened or disproportionately risked the capital for a single trade, the situation is called overtrading. Traders should be keen-eyed to ensure that they can keep them restrained from overtrading.
How do you avoid the mistake?
To avoid the mistake of overtrading, traders must have a rigid trading plan. However, just having a plan will not be enough. It must be implemented by calculated strategy and discipline. Also, traders can not afford to lose emotional control. Again it happens among the novice traders that they fail to keep their emotions on track; eventually, overtrading occurs.
Final thought
The pivot point can become an indispensable tool since the trading method has many benefits. It allows you to trade alongside the market flow by providing signals with higher precision. The pivot points are also beneficial for novice traders as they can get clarification on determining the levels of entry, take-profit, and stop-loss orders for a particular trade.
