What impact your mind frame has on your day trading activities will in part be determined by how emotionally tuned you are. In some cases, if you happen to blow with your emotions, your day will be heavily affected by other things in your life, frustration, or a few bad trades. In other cases, you may have a high tolerance for emotional strife before you believe it affects your daily dealings. In either case, the mind frame you enter the day with counts.
Because day trading is a solo activity, only you get to determine how your day goes and how you handle the events of the day. Because of this solo activity, you may also need to develop a higher level of self awareness. Your mood can become your monkey on your back even during a good trading day. If you allow a downcast mood to factor into your decisions, you are no longer making objective decisions. Using emotion through the trading day is a definite sign of potential loss. Being objective helps you make objective decisions and the introduction of emotion into that equation is a good recipe for loss.
On top of the unexpected emotional ups and downs of every day life, you also need to take into account the typical rhythm that your body goes through. Some people are morning people with clarity of mind and others just don't perk up until later in the day. Know yourself, and your own natural biorhythms, and you will be more readily capable of determining the best time to lay out your plan for the following day. In some cases, you are going to need to learn to trust your clear conceptualizing because when you go to execute your trades, your mental cloudiness may want to over rule the clearly thought out plan.
If you are a morning person with the wind at your back all the way until noon, use that time wisely. During your natural down time, rely on your good judgment from the morning. If you are a natural night owl, use your morning to execute trades that were well thought during your peak times the day before, again trusting your earlier clarity. This is a process that takes some traders a couple of years to really get down. They allow their own poor judgment of their fatigued time to get in the way of what was otherwise a perfectly awesome plan.
Developing self discipline is a necessity. Learn everything you can about yourself, the way you make certain decisions at certain times of the day, and learn to trust your most clearly thought out plans. Some traders keep a notebook beside them and note their mood and their overall energy level as they make decisions, and then they go back and keep track of the quality of those decisions to help figure out what time of the day they make the clearest and most profitable decisions.
This requires a dedication and a time commitment, but those who have successfully tracked themselves are successfully happier with their results from this exercise. Should you choose to follow the exercise, you can not pick and choose which decisions you keep track of. You must keep account of every single one and the shortest amount of time that is recommended is two weeks, with most people finding the best results between one and three months.
Well defined plans are vital to creating wealth over time and executing intelligent and profitable trades. Defining those plans during the times of the day when you are most apt to make the best decisions is only logical. Creating an environment that is healthy enough to allow you to leave your emotional issues at the door when you sit down to trade is also a vital part of keeping a clear trading head and trading without emotional involvement. These are easier said than done, but just like everything else, with practice comes better.
Pivot points are most commonly used to determine support and resistance levels, which are the prices at which trends will tend to reverse direction. The support level indicates where the price will likely find ?support? as it goes down and start to turn back up again. The resistance level is the opposite: the price where a trend tends to stop rising and start dropping.
When it comes to actually using pivot points, most traders refer to the "5-point-system." This system uses the previous day's high (H), low (L) and close (C), along with two support levels (S1 and S2) and two resistance levels (R1 and R2). The pivot points are calculated as follows:
R2 = P + (H - L) = P + (R1 - S1) R1 = (P x 2) - L P = (H + L + C) / 3 S1 = (P x 2) - H S2 = P - (H - L) = P - (R1 - S1)
If it has been some time since you've used formulas, however, don't worry. Fortunately, there are many free pivot point calculators available, such as http://www.pivotpointcalculator.com, and you do not have to calculate them yourself. Once you have calculated the pivot points based on the previous day data, you simply plot them on your chart.
I have never heard of any professional trader who uses pivot points exclusively in their day trading. They should not be seen by themselves as a trading system since, in fact, you will find pivot points at many different places on a trend line. In other words, if the price falls below a certain support level, for example, you will be able to calculate another pivot point, or support level, below that one. Pivot points are not absolute numbers, but are relative to the price's current position. Consequently, most traders use them in conjunction with other indicators, and some even use them as profit targets or stop loss levels.
Deciding whether or not to use pivot points depends entirely on your current trading strategy. Experiment with them first. Plot the pivot points on your chart, and determine whether they give you any additional information. Can you use them as a filter? Could you use them to narrow your stop loss? Would they keep you out of losing trades and therefore increase your trading performance? If the answer to any of these questions is yes, then you should update your trading plan and use them. Otherwise, delete them and keep your charts clean. Your charts should only ever contain information that you actively use, and you should never feel compelled to use an indicator just because others use it. Pivot points are no exception, no matter how widely used they are.
Both Terry Leslie & Rockwelltrading@gmail.com are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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