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Pivot Points

Pivot points are important levels for the traders and investors who can use them to determine directional movement of the price and find potential support and resistance levels. In calculating pivot points, previous period's high, low and close are used to estimate future support and resistance levels. In this sense, pivot points are mathematically derived predictive or leading indicators. Pivot points are used by traders to predict market trends and identify potential reversal points too. 

How to calculate Pivot Points (PP)

Pivot points were originally used by traders to set key levels for short-term focus. At the beginning, they look at previous period's high, low and close to calculate a Pivot Point for current trading period. Considering this Pivot Point as the base, further various support and resistance levels calculated. Thus, Pivot point serves as the primary reference level. All these levels are used to take trading decision throughout the current trading period.   

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Standard Pivot Points 

​Standard pivot points are widely used to identify potential support and resistance levels for a particular trading period. Standard pivot point is a simple average of high, low and close of the previous period. It is a solid middle point between other support and resistance levels. 

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Formula for Standard Pivot Points: ​​​​​​​​​

   P   =   ( High + Low + Close ) / 3 

   R1 =   ( P * 2 )  -  Low

   R2 =   P + ( High - Low )

   R3 =   High + 2 * ( P - Low )​

   S1 =   ( P * 2 )  - High

   S2 =   P - ( High - Low)

   S3 =   L  -  2 * (High -P )

 ← Where →

   P   =   Pivot Point

   R1 =   Resistance 1

   R2 =   Resistance 2

   R3 =   Resistance 3

   S1 =   Support 1

   S2 =   Support 2

   S3 =   Support 3

  • High indicates the highest price of the previous period (day)

  • Low indicates the lowest price of the previous period (day)

  • Close indicates the closing price of the previous period (day)

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