Spotting Price Pivot Zones (PPZ)
When you are trading binary options, it can be extremely helpful to know how to identify price pivot zones (often abbreviated PPZ). There are a couple of different definitions for pivot zones. In the context of this discussion, I am talking about areas of support and resistance. Pivot zones may act as either support or resistance depending on where price is located relative to the pivot area. When price is above a pivot area, the zone acts as support, bolstering price. When price is beneath a pivot zone, the area tends to act as resistance, forming a ceiling which is tough for price to break through.
Price hesitates when it encounters a pivot area. And each time price tests a pivot zone without busting through, the stronger that pivot zone becomes. It pays off (literally) to learn to spot these areas, because when price hesitates, you have an opportunity to make money. But if you do not position yourself to take advantage of these areas, they can actually act against you. It is all in the placement of your trades.
What Can Create a Pivot Zone?
Moving Averages
A pivot zone can result near a moving average, particularly a slower-moving average. These slower-moving averages have more data in them, and reflect longer-term, stronger trends. It is common for support and resistance to form around these moving averages. When moving averages start to pull together and flatten out (as with consolidation), pivot zones are very strong. They weaken once a faster-moving average manages to pass through a slower one, which is why there are so many moving average crossover systems.
Fibonacci Levels
At Fibonacci extension and retracement levels, price tends to hesitate as well. You can read a detailed guide to Fibonacci levels here. It is good to be aware of these levels and where they are located, since other traders tend to respect these levels. You can think of them as a kind of self-fulfilling prophecy. Because traders think of them as important and behave strangely around them, they become important.
Round Numbers
Round numbers, like Fibonacci levels, are not inherently important, but traders make them so by treating them as significant. When you see price hovering at a level like 1.3500, you are likely to encounter support or resistance at that level. It is easy to forget about these levels if you do not tend to think of them as inherently significant—but never forget that other traders do. Treat them with respect.
Historical Pivot Areas
Pivot areas are often tested again and again throughout time, and even after they are broken, they can leave a kind of ghost behind them, an echo. If you notice price hesitating around a certain area, draw a horizontal line through it on your charting platform, and then scroll back in time. You will quite often see that price hesitated at that exact same level in the past. Some areas are significant over months, and others, over years.
Real World Events
Fundamental events can also cause support and resistance areas to form. Buying and selling pressures relating to stocks, futures, and currencies can create pivot areas. Economic uncertainty can contribute to these areas as well. If you are a fundamental analysis trader, you can often predict when price is going to hit a floor or a ceiling based off of these events.
Sometimes you can spot pivot areas visually just by glancing at your charts. You may notice a lot of swing highs or swing lows lining up in a row. You can draw a line through this area and keep an eye on it. In the middle of a trade, you may very well notice price hesitating or reversing when it reaches that pivot zone. Others you can learn to spot or predict based off the patterns discussed above. Draw pivot zone lines through round numbers, Fibonacci levels, and historical areas. Also consider adding some moving averages to your charts so you can see even more areas of potential support and resistance.
When you are not aware of PPZ, it is like trading blindfolded and feeling your way around in the dark, just hoping you will not stumble down a flight of stairs. But when you start drawing lines through pivot zones and learning to recognizing support and resistance, it is like turning on night-vision goggles. These valuable tools can help you to see your way through the dark and plan winning trades!