Pivot Points

I first heard about Pivot Points when I used to day trade the Forex Market.

In fact, the nature of Pivot Points would probably dictate that they would only be of any real use to the day trader as they are dependant upon the previous days prices and are therefore good for only 1 day of trading.

Pivot Points work by indicating points of support and resistance for the price of a financial instrument that is being traded.

When the price reaches a pivot point, it will either bounce back from it (indicating support or resistance) or continue beyond it.

If the price continues beyond the Pivot Point, then the trader can enter the market with the knowledge that the price will statistically continue to rise or fall beyond the price indicated by the Pivot Point.

So how do we work out how to find where the Pivot Points occur? Well there are several calculations for calculating the price of Pivot Points, one of the most common being:

R2 = P + (H - L) = P + (R1 - S1)
R1 = (P x 2) - L
P = (H + L + C) / 3
S1 = (P x 2) - H
S2 = P - (H - L) = P - (R1 - S1)

Where:
P = Pivot Point
R1 = 1st Resistance Level
R2 = 2nd Resistance Level
S1 = 1st Support Level
S2 = 2nd Support Level
H = Previous Days High
L = Previous Days Low
C = Previous Days Close

So the Pivot, Resistance and Support lines can now be plotted onto the day trading chart and acted upon when the price reaches them.

If you are thinking of giving Pivot Points a try, be sure to test and plan how you are going to use them before implementing them into your trading.

UPDATE : You can now use the free Online Pivot Point Calculator here.

UPDATE : You can now download the free Pivot Point Calculator Software here.

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