Pivot Points are calculated support and resistance levels based on the previous period's price data. They're widely used by day traders and provide objective reference levels.
What Are Pivot Points?
Definition
Pivot Points:
- Calculated S/R levels
- Based on previous period
- Predictive levels for current period
- Floor trader origins
Purpose
Uses:
- Support and resistance
- Intraday bias
- Entry and exit levels
- Target setting
Basic Pivot Calculation
Central Pivot (PP)
Formula: PP = (High + Low + Close) / 3
Meaning:
- Equilibrium level
- Market balance point
- Bias reference
Support Levels
S1 = (PP × 2) - High S2 = PP - (High - Low) S3 = Low - 2 × (High - PP)
Resistance Levels
R1 = (PP × 2) - Low R2 = PP + (High - Low) R3 = High + 2 × (PP - Low)
Types of Pivot Points
Standard (Floor Trader)
Most Common:
- Classic calculation
- Widely watched
- Good for most markets
Fibonacci Pivots
Calculation:
- Uses Fibonacci ratios
- S1 = PP - (0.382 × Range)
- R1 = PP + (0.382 × Range)
- More levels
Woodie's Pivots
Calculation:
- Weights current open
- PP = (High + Low + 2 × Open) / 4
- Different from classic
Camarilla Pivots
Calculation:
- Four S/R levels each side
- Tighter to price
- Good for mean reversion
DeMark Pivots
Calculation:
- Conditional formulas
- Based on open vs close
- Different calculation method
Using Pivot Points
Determining Bias
Above Central Pivot:
- Bullish bias for day
- Look for long setups
- Support from pivot
Below Central Pivot:
- Bearish bias for day
- Look for short setups
- Resistance from pivot
Trading at Levels
At Support (S1, S2, S3):
- Watch for bounce
- Potential long entry
- Stop below level
At Resistance (R1, R2, R3):
- Watch for rejection
- Potential short entry
- Stop above level
Breakout Trading
Break Above Resistance:
- Next resistance is target
- Previous resistance is support
- Bullish continuation
Break Below Support:
- Next support is target
- Previous support is resistance
- Bearish continuation
Pivot Point Strategies
Pivot Bounce Strategy
Setup:
- Price approaches pivot level
- Look for reversal signal
- Enter in reversal direction
- Stop beyond level
- Target next pivot level
Pivot Breakout Strategy
Setup:
- Price breaks pivot level
- Wait for close beyond
- Enter in break direction
- Stop inside level
- Target next level
Central Pivot Range
Concept:
- Area around central pivot
- High + Low + Close approach
- Zone rather than line
Trading:
- Use zone for bias
- Consolidation area
- Breakout reference
Timeframes for Pivots
Daily Pivots
Based On:
- Previous day's HLC
- Most popular
- Good for day trading
Weekly Pivots
Based On:
- Previous week's HLC
- Stronger levels
- Good for swing trading
Monthly Pivots
Based On:
- Previous month's HLC
- Major levels
- Position trading
Pivot Points vs Other S/R
Pivot Points
Advantages:
- Objective calculation
- No drawing required
- Updated each period
- Widely watched
Disadvantages:
- May not align with price action
- Mechanical levels
- Don't account for context
Traditional S/R
Advantages:
- Based on actual price action
- Visual confirmation
- Historical significance
Disadvantages:
- Subjective placement
- Requires skill to identify
Combining Pivots
Pivots + Moving Averages
Strategy:
- Pivot for level
- MA for trend
- Trade pivots with trend
Pivots + Candlesticks
Strategy:
- Pivot for level
- Candlestick for signal
- Reversal pattern at pivot
Pivots + RSI
Strategy:
- Pivot for level
- RSI for condition
- Oversold at pivot support
Common Pivot Mistakes
Trading Every Level
Mistake: Taking trade at every pivot
Solution: Select best levels
Ignoring Price Action
Mistake: Mechanical pivot trading
Solution: Require price confirmation
Wrong Timeframe
Mistake: Daily pivots for weekly trades
Solution: Match pivot period to trading timeframe
Tight Stops
Mistake: Stop right at pivot
Solution: Give room beyond level
Pivot Point Checklist
Before Trading Pivots
- [ ] Pivots calculated/plotted
- [ ] Daily bias determined
- [ ] Key levels identified
- [ ] Price action at level
- [ ] Confirmation present
- [ ] Stop defined
- [ ] Target set
Pivot Point Tips
Focus on Key Levels
Most Important:
- Central Pivot (PP)
- S1 and R1 (first levels)
- S2/R2 (secondary)
- S3/R3 (extreme)
Watch Opening Range
First Hour:
- How price reacts to PP
- Sets tone for day
- Direction indication
Confluence Levels
Stronger When:
- Pivot aligns with other S/R
- Multiple pivots types agree
- Fibonacci alignment
Update Regularly
Remember:
- Pivots change each period
- Update daily for day trading
- Weekly for swing trading
Key Takeaways
- Pivots are calculated S/R levels
- Based on previous period's HLC
- Central Pivot determines bias
- S1, S2, S3 are support levels
- R1, R2, R3 are resistance levels
- Multiple calculation methods exist
- Trade bounces or breakouts
- Combine with other analysis
What's Next?
Learn about momentum indicators for measuring price velocity.
This article is for educational purposes only and does not constitute financial advice.