Pivot Point

A pivot point is a technical analysis indicator used by traders to determine potential support and resistance levels in the market. It is calculated based on the previous day’s high, low, and closing prices, and it helps traders predict the direction of the market’s movement. Pivot points are widely used in short-term trading strategies, as they provide key levels where the price may change direction.

The formula for calculating the pivot point is: Pivot point equals the sum of the high, low, and close prices from the previous trading session, divided by three.

In addition to the main pivot point, traders often calculate additional support and resistance levels based on the pivot point:

• First resistance level (R1): Pivot point multiplied by two, minus the low price.
• Second resistance level (R2): High price minus low price, added to the pivot point.
• First support level (S1): Pivot point multiplied by two, minus the high price.
• Second support level (S2): Low price minus high price, added to the pivot point.

These levels help traders identify where the price might find support (a level at which the price tends to stop falling and may reverse upwards) or resistance (a level at which the price tends to stop rising and may reverse downwards).

If the price trades above the pivot point, it is considered a bullish signal, while trading below the pivot point suggests a bearish signal. Pivot points are particularly useful for day traders and scalpers who rely on short-term price movements to make trading decisions.