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how do most of you interprete pivot points? |
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I will start with a key definitional mistake most people make.
Pivot Points are the lowest low in a swing move or the highest high in a swing move. That is, a swing high is a Pivot High and a swing low is a Pivot Low. When the market is making higher Pivot highs and higher Pivot lows, it is said to be in an uptrend. Conversely, when a market is making lower Pivot lows and lower Pivot highs, it is in an uptrend.
Floor, or key, numbers are numbers, or areas, where price may react/stall/ or reverse. Therefore, a floor number may become an pivot area IF AND ONLY IF the market makes a Pivot High or Pivot Low at that area or number.
The point here is that as traders we should be watching these areas for price to do certain things before we consider the area a Pivot area (line). Floor numbers are inferred support/resistance. That is, the numbers these lines represent are not necessarily places where the market has previously found support or resistance. Many people believe that these lines will act as support or resistance, but that believe is not grounded in the fact that the lines (areas) already have. This is what distinguishes floor numbers from Market Profile support/resistance numbers.
Are you watching for expanded volume and ranges as price trades towards a key number? If the Smart Money wants to take prices through a true area of support, you will see Volume backing the move. If the range of the bars is narrowing and volume is falling off, then it is more likely that the area will hold. Which means it goes from an inferred support/resistance area into an actual support/resistance area or Pivot area.