What are Pivot Points?

Pivot points are technical indicators used to calculate support and resistance levels for that trading day. The major application of them is in forex market, but also available for stocks and derivatives. They are pretty easy to derive and follow, and can be used as a resistance or support level simultaneously according to market trends.

Pivot point calculating methods vary considerably. The standard formula uses yesterdays high (H), low (L) and closing (C) prices to calculate pivot point (PP).

• PP = (H + L + C / 3)

Some other methods uses additional price information, like yesterday’s opening price, for calculation.

Pivot points include pivot point and two or three supporting and resistance levels. The supporting and resisting levels are calculated by the following formulas.

• Resistance1 or R1 = (PP x 2) – L
• Support 1 or S1 = (PP x 2) – H
• Resistance2 or R2 = PP + (H - L) or PP + (R1 – S1)
• Support 2 or S2 = PP - (H - L) or PP - (R1 – S1)

Pivot point itself is the proposed price range for highest trade activity, other points like R1 and S1 are proposed moderate trade activity ranges. If the market goes upwards, the pivot point can be used as a support level if the market goes downwards then as resistance level.

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