Bank Nifty Pivot Point: There are many technical indicators you can use while trading in bank nifty, one of them being pivot points. Pivot points are one of the most commonly used technical indicators as they help in identifying good resistance and support zones. In this article, I’m going to show you how to use pivot points while trading in bank nifty.
What Is Bank Nifty?
Nifty Bank, or Bank Nifty, is an index comprised of the most liquid and large capitalized Indian banking stocks. It provides investors with a benchmark that captures the capital market performance of Indian bank stocks. The index has 12 stocks from the banking sector.
What Is A Pivot Point?
A pivot point is a technical analysis indicator, or calculation used to determine the overall trend of the market over different time frames. The pivot point itself is simply the average of the intraday high and low, and the closing price from the previous trading day.
On a subsequent day, trading above the pivot point is thought to indicate ongoing bullish sentiment, while trading below the pivot point indicates the bearish sentiment.
What Do Pivot Points Tell You?
Pivot points are an intraday indicator for trading futures, commodities, and stocks. Unlike moving averages or oscillators, they are static and remain at the same prices throughout the day. This means traders can use the levels to help plan out their trades in advance.
Limitations Of Pivot Points
Pivot points are based on a simple calculation, and while they work for some traders, others may not find them useful. There is no assurance the price will stop at, reverse at, or even reach the levels created on the chart. As with all indicators, it should only be used as part of a complete trading plan.
Day Trading With Pivot Points In Bank Nifty
When calculating pivot points, the point acts as the primary support or resistance level. High-volume trading often occurs when the price is at or near the pivot point. The following are the main trading strategies used with pivot points:
1. Pivot Point Bounces
If the price action hesitates and bounces back before reaching the pivot level, you should enter the trade in the direction of the bounce. If the price of a security is trading above a pivot line and if it comes back to retest that pivot line and takes support there you can go long again.
On the other hand, if the prices are testing the pivot line from the lower side and the price bounces back to the downside after hitting the pivot, you should sell short. The stop-loss for the trade is located above the pivot line if the trade is short, and below the pivot line if the trade is long.
2. Pivot Point Breakout
When the price action breaks through the pivot line – such as crossing from below it to above it – the trade should continue in the direction of the breakout. If the breakout is bearish, the trade should be short, while for a bullish breakout, the trade should be long.
A good place to implement a stop-loss order is slight to the other side of the pivot line. For example, if buying long based on price crossing above the pivot line, a sell-stop would be placed a bit below the pivot line.
Why Do Day Traders Prefer Pivot Points While Trading In Bank Nifty?
Day traders often prefer using pivot analysis over other technical indicators for several reasons. They include:
1. High Accuracy
The pivot point is considered one of the most accurate indicators in the market. This explains why a majority of day traders like using it to determine trade entry or exit points. It enables traders entering the market to follow the overall flow of the market since it uses the previous day’s trading action to predict the current day’s likely action.
2. Short Time Frames
Unlike other trading tools that use long time frames, the pivot point indicator obtains data from a single day of trading. It takes the previous day’s high, low and close prices to predict probable support and resistance levels. Although pivot trading is primarily applied on the daily time frame, pivots can also be calculated for much shorter time frames, such as the hourly or 15-minute charts.
3. Easy To Use
A pivot point indicator is an easy-to-use tool that’s been incorporated into most trading platforms. The platforms automatically calculate support and resistance levels, so the trader doesn’t have to do it manually. After getting the pivot levels, the trader can concentrate on figuring out their approach to the market for the day.
Pivot points can be very useful while trading in bank nifty and can give you really good trades but always use them in correlation with price action or another technical indicator for better results.
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