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Pivot points are also ideal for providing clearly defined Binary Options signals. Meanwhile, the range of tradable underlying at Binary Options brokers is very large, so that one will have no problems implementing a pivot trading strategy with Binary Options. Therefore we will show you in the following how to calculate Pivot Points and how the Pivot Concept can be used for profitable Binary Options trades.
How Pivot Points are calculated:
To calculate the pivot points for the current trading day, you only need the 4 most important prices of the previous trading day: opening price (O), high (H), low (L), and closing price (C). The pivot point (PP) is calculated as follows:
- PP = (H)+(L)+(C)/3
This point is an extremely significant price for the current trading day and can be seen as the average price of the previous day or significant turning point for the current trading day. In addition to the pivot point itself, there are several important support and resistance levels which are also calculated from the relevant prices of the previous day (O, H, L, and C). These are usually designated R1, R2, R3 (resistance levels) and S1, S2, S3 (support levels).
Fortunately, there are now countless online tools available to relieve traders of the calculation work – with a good Pivot Point Calculator, you can calculate the pivot points for practically all important assets directly online.
Example Pivot Points in the DAX
To determine the pivot points for the current trading day, we use the most important reference prices of the previous day, as explained. For the DAX these are the following prices:
- Opening price (O): 7,636.26
- Highest price (H): 7,649.50
- Lowest price (K): 7,588.57
- Closing price (C): 7,593.51
The following pivot points are calculated from this:
- R3: 7.693,41
- R2: 7.671,46
- R1: 7.632,48
- PP: 7,610.53
- S1: 7.571,55
- S2: 7.549,60
- S3: 7.510,62
The most important reference marks for the current trading day are initially PP, S1, and R1. However, depending on the degree of fluctuation on the current trading day, the further support and resistance levels (S2, R2, S3, R3) are often also of great importance. The pivot point (PP) is to be seen as the average price or starting point for the trading day. This price should not be used directly to open trading positions, it is more for orientation.
Call or put options are bought at the support and resistance levels (initially S1 and R1). S1 is suitable for call options and R1 for put options. In any case, one should also keep an eye on the overriding trend. If, for example, there is a strong downward trend, it can make sense to buy a call option, not at S1 but first at S2 or S3.
The chart above clearly shows that the DAX, after a weak opening, turns at the support S1. Here, a call option on rising prices would have been the right choice and would have led to a profit between 80% and 90% depending on the broker. You can find a detailed yield overview of our Binary Options Broker Comparison.
Since Binary Options Brokers often do not offer optimal charting software, the pivot levels can usually not be plotted directly on the chart. For this reason, it is also recommended that you use additional free charts available for professional Binary Options trading.
Choose one of our trusted Binary Options Brokers:
Why trade Pivot Points with binary options?
Binary Options offer the advantage of calculable risk with high potential returns. The maximum loss is always limited to the stake. This means that there are no higher losses than planned, as can happen when trading Forex or CFDs with poor execution (slippage). Many Binary Options brokers also offer loss protection, in which case up to 15 percent of the stake is refunded if the option expires out of the money.
Binary options also have a certain natural tolerance for error, as the settlement is only made at the end of the term. Price movements within the term are generally irrelevant. Thus, no stopping out of the trade is possible and the timing is less critical than in Forex or CFD trading.
If, for example, a Binary Options Trader decides to buy a call option at support S1 with a term of a few hours, the price can also fall in the meantime up to support S2 without a direct loss being realized. If the price of the underlying asset rotates at the pivot point S2 and is only one tick higher at the end of the term than at the time of entry, the trader makes the predefined profit (usually between 75% and 90%).
Why trade Pivot Points with Binary Options:
- Limited risk
- Limited time
- High yield is possible
- Fast trading ist possible
- Trade small market movements
5 steps to the first trade with Pivot Points
There are numerous options available for trading Binary Options. However, no strategy is a guarantee of success. It is particularly important that traders acquire sufficient knowledge about trading to be able to assess developments as well as possible. So what is important when trading Binary Options? In the following picture and list, traders will learn what to look out for and how to complete their first trade in just 5 steps.
- Find the asset you want to trade
- Calculate privot points or use a indicator
- Choose the expiry time of the option
- Choose the investment amount
- Open the trade (call or put)
Conclusion: Pivot points as profitable binary options strategy
The concept of Pivot Points is excellent for use as a Binary Options strategy because it promotes a structured approach to binary options trading. Binary Options have the potential to generate high returns with calculable risk. Pivot Points provide clearly defined entry points into the market with a good probability of success.
Binary Options and Pivot Points, therefore, form an ideal, profitable symbiosis for speculative but strategically oriented traders. Especially in the area of binary options, traders can start with very small trading accounts, so that there is often a lack of strategic know-how in addition to trading capital. The pivot concept is also a simple way for beginners to systematize their own trading and thus increase the long-term probability of success.
Check out my other articles about Binary Options:
- 15 Rules for Binay Options – Tips & Tricks
- 5 best Binary Options Broker 2020 – Review & Comparison
- Are Binary Options a gamble?
- Are Binary Options a scam?
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- Best Binary Options App – Comparison & Review
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- Binary Options – Range Options – Boundary Options
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- Binary Options 60 seconds Trading Strategy & Tips
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- Binary Options demo account – Recommended For Beginners
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- How to trade Binary Options – Trading Tutorial
- How to Trade Stocks with Binary Options – Tutorial
- Is Binary Options Trading safe? – Consumer protection
- Learn to read Binary Options Candle Sticks
- Trade Binary Options with MetaTrader
- Trade Pivot Points with Binary Options
- Warning about Binary Options – A form of betting
- What are Binary Options?
- Why Binary Options Signals are a scam