What is a typical use of pivot points in trading?

Pivot points are widely used in technical analysis to identify potential levels of support and resistance in the price movement of securities. These levels help traders, particularly day traders, in determining optimal entry and exit points based on short-term price movements.

In the context of day trading, pivot points are calculated using the previous trading day's high, low, and close prices, providing specific price levels where the market might react. When the price approaches a pivot point, traders often look for signs of a reversal or continuation in the market direction. This enables them to strategically place trades with a higher probability of success, allowing for informed decisions on when to enter or exit a position.

The other options, while relevant to trading, do not align directly with the primary function of pivot points. Long-term investment strategies are generally based on different analytical techniques, risk management practices encompass broader parameters such as stop-loss orders, and fundamental analysis involves examining economic data rather than price levels derived from technical charts. Thus, the characteristic use of pivot points clearly relates to determining entry and exit points for day trades.