Woodies Pivot Point Indicator
- The woodies pivot is a technical indicator used to analyse the stock market. It is used by day traders and intraday traders to find the short-term support and resistance levels.
- Woodies pivot indicator is similar to the Camarilla pivot indicator in the sense that even Woodies pivot has many support and resistance levels along with the pivot point.
Formulae used to find the Woodies pivot point:
- Third Resistance (R3) = High + 2 * (Pivot – Low)
- Second Resistance (R2) = Pivot +High – Low
- First Resistance (R1) = (2 * Pivot) – Previous Low
- Pivot = (Previous High + Previous Low + 2 * Previous Close) / 4
- First Support (S1) = (2 * Pivot) – Previous High
- Second Support (S2) = Current Pivot – (R1 – S1)
- Third Support (S3) = Low – 2 * (High – Pivot)
- Woodies pivot indicator can be used when the price is moving in the horizontal direction, i.e., the price trades in a range.
- Here, the price ranges between S2 and R2 or S1 and R1. This range is referred to as the daily price range, which benefits the intraday traders.
- Short-term traders can enter the market and initiate their short positions when the price touches R1 or R2, because price reverts back to S1 or S2.
- Similarly, the short-term traders can enter the market and initiate their long positions when the price touches S1 or S2. It is because the price reverts back to R1 or R2.
- Woodies pivot indicator can also be used when the price is moving in a particular direction, i.e., either upward trend direction or downward trend direction.
- In such cases, traders should make use of the extreme support and resistance levels too.
- If the stock is trading below the pivot and suddenly there is an upward trend, traders can enter the market at R2 and place a stop loss at R1. They can stay in the trade until the price reaches R3, which should be the exit point.
- Similarly, if the stock is trading above the pivot and suddenly there is a downward trend, traders can enter the market at S2 and place a stop loss order at S1. They can stay in the trade until the price reaches S3, which should be the exit point.
- The main disadvantage of the Woodies pivot indicator is that it is not beneficial for the long-term traders. Also the indicator might produce false results when there is a high price volatility.
- Hence, traders need to be aware of the market conditions before using this indicator to enter the trade.