4.43 How Pivot Points Reflect Market Sentiment

Pivot points and market sentiments.
 
Pivot points also act as guideposts to the overall sentiment of the market. 
 
Remember moving averages and how we could get a quick grasp of the current trend by just looking at where the price is in relation to the moving average? If the price line is below the moving average, a downtrend prevails and sentiment is poor. If it is above, it’s an uptrend.
 
The pivot point level also offers clues to the current sentiment of the market. This level offers the most significant resistance to an uptrend and the highest support to a downtrend. It therefore becomes a very crucial level for judging the market sentiment.
 
Like the price-moving average comparison we mentioned, the pivot point also offers a quick peek into the market sentiment. Simply put, it acts like an invisible boundary line between bearish and bullish zones.
 

Pivot point in comparison with the previous open and close

 
If the pivot point level is above the previous period's open price, it is an indication of bullish sentiments. The bullishness will be more evident if this level is above both open and close. The opposite of the same is true to indicate bearish sentiments i.e. when the pivot point is lower than the previous periods open or both open and close price levels.
 

The opening

 
The opening of the day is the first clue to the market sentiment. If during the opening of the day the price-action is trying to break over the pivot, one should assume that prices will follow the path of least resistance and trend up through the day. A bullish market sentiment is therefore likely, and traders would tend to trade with long positions.
 
If the day opens with the price-action trying to break below the pivot, market sentiment is likely to be bearish during the day, and traders are likelier to press short trades.
 

Action during the day

 
Watch the tug-of-war carefully between bulls and bears around the pivot point line. Like this!
 
Identifying bullish or bearish sentiments with pivot points.
 
If you see that the bulls have the advantage and are able to push the price up and above through the pivot line, clearly the sentiment thermometer says ‘BULLISH’, and you should be in the bull camp with your trades.
 
On the other hand, the bears may maul the price and make it plunge down through the pivot line the sentimo-meter will flash ‘BEARISH’ and be ready with short orders.
 
In the net analysis, view the pivot line as a key line-in-the-grass, so to speak, for reckoning market sentiment as bullish (up) or bearish (down), depending upon where the price is positioned.
 

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