Consider pivot point is the level at which the market direction changes for the day. Using some simple arithmetic, on previous day’s high, low and close, a series of points are derived. The pivot level, support and resistance levels calculated from that are collectively known as pivot levels. Pivot Points and Support and Resistance levels behave exactly like any historical Support and Resistance level. These points can be critical support and resistance levels especially due to their popularity and simple calculations. The second reason why pivots are so popular is because they are predictive as opposed to lagging. Even if the markets don’t necessarily reverse at these levels, it is often seen that the market reacts at these levels. As a result they give you an opportunity to trade. The three most important pivot points are R1, S1 and the actual pivot point (P).
The opening range could have wild moves and many whipsaws. To avoid whipsaws, better to wait for market to show its mood through the opening session. If after the opening session, the price remain above or below the pivot point, it is likely to remain that way for the session. After the opening range,
If, market opens above the pivot but then Prices fall below the ‘Pivot’ then the ‘Pivot’ would act as resistance area.
For profitable trading, it is best not to rely on Pivot points alone. They work better if combined with pattern formation, channeling, previous support and resistance, moving averages and Fibonacci levels.
Open Interest Analysis could also give clues for the market direction. If the OI data and pivot are pointing in the same direction, we have a base building for high probability scenario.