Another less popular method of identifying the trend is through the use of the pivot point. A pivot point is a level that is considered to be of importance and is used by many technical traders. A pivot point is calculated as an average of the high, low, close from the previous timeframe of the market. If price is trading above the pivot point, it is considered bullish, whereas below is considered bearish.
An example of a bullish market can be seen below.
With price above the pivot point, the market is considered bullish. During these times a trader would be looking to buy or go long. It should also be clear in the above image of how precise and exact the pivot point was in offering an area of support which resulted in price bouncing and continuing up. The below example shows an example of a bearish market.
Once again, with price below the pivot point a trader should only be looking to short or sell into the market. The above image shows price reacting in a similar way each time it approach the pivot point. First it offered support until price broke through then it offered resistance.
The use of the pivot point for trend identification isn’t as powerful as other methods like price action. Like any method or tools, this method of trend identification has it’s weaknesses.
The above image shows price moving up and down through the pivot point all within the same time frame. For this reason it is strongly advised that other confirming factors be used in conjunction with the pivot point. This may include price action or trading indicators.