Introduction
Pivot PointsPivot PointsPredetermined support and resistance levels calculated mathematically using the previous session's high, low, and close prices.Read full glossary entry → are one of the oldest and most popular technical analysis tools used by floor traders and day traders to identify objective intraday supportSupportA price level where buying pressure is strong enough to prevent the price from falling further. It represents a "floor" on the chart.Read full glossary entry → and resistanceResistanceA price level where selling pressure is strong enough to prevent the price from rising further. It represents a "ceiling" on the chart.Read full glossary entry → levels. Unlike indicators that lag behind price (such as moving averages), Pivot PointsPivot PointsPredetermined support and resistance levels calculated mathematically using the previous session's high, low, and close prices.Read full glossary entry → are leading indicators. They use the mathematical data of the previous trading session to project supportSupportA price level where buying pressure is strong enough to prevent the price from falling further. It represents a "floor" on the chart.Read full glossary entry → and resistanceResistanceA price level where selling pressure is strong enough to prevent the price from rising further. It represents a "ceiling" on the chart.Read full glossary entry → coordinates for the current session before the market even opens.
Why Pivot Points Matter
Pivots are highly regarded by professional traders because:
- Objectivity: The calculations are strictly mathematical. Thousands of retail and institutional traders look at the exact same price levels, creating a self-fulfilling prophecy effect.
- Intraday Map: They give traders a ready-made blueprint of where price is likely to find support (S1, S2, S3) and resistance (R1, R2, R3).
- Bias Filtering: The central Pivot Point (PP) provides a simple filter: trading above PP signals a bullish bias, while trading below PP signals a bearish bias.
Pivot Point Formulas
The system starts by calculating the central Pivot Point (PP) using the High (H), Low (L), and Close (C) from the previous day:
Once the central PP is established, the support (S) and resistance (R) levels are calculated:
- First Support (S1):
(2 * PP) - High - First Resistance (R1):
(2 * PP) - Low - Second Support (S2):
PP - (High - Low) - Second Resistance (R2):
PP + (High - Low)
Trading Applications
1. Intraday Bias Filtering
- If price opens above the central PP, focus on buying pullbacks (long bias).
- If price opens below the central PP, focus on selling rallies (short bias).
2. The Bounce Setup
When price is in a range-bound market:
- Look for price to touch S1 or S2. Wait for a bullish candlestickCandlestickA method of displaying financial price data that shows the open, high, low, and closing prices of a security for a specific time period.Read full glossary entry → trigger (e.g., Hammer) to enter long, targeting the central PP.
- Look for price to touch R1 or R2. Wait for a bearish candlestickCandlestickA method of displaying financial price data that shows the open, high, low, and closing prices of a security for a specific time period.Read full glossary entry → trigger (e.g., Shooting Star) to enter short, targeting the central PP.
3. The Breakout Setup
During highly volatile days:
- If price breaks above R1 on high volumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry →, buy the breakoutBreakoutA price movement through an established support or resistance level. A breakout is often accompanied by increased volume, signaling strong momentum.Read full glossary entry →, targeting R2.
- If price breaks below S1 on high volumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry →, sell the breakoutBreakoutA price movement through an established support or resistance level. A breakout is often accompanied by increased volume, signaling strong momentum.Read full glossary entry →, targeting S2.
Common Beginner Mistakes
[!WARNING]
- Trading Without Price Action Triggers: Placing limit buy orders directly on S1 without waiting to see if price actually holds. If the market is in a strong trendTrendThe general direction in which a security or market is moving over time.Read full glossary entry →, it can easily blow right through pivot lines.
- Cluttered Charts: Plotting daily, weekly, and monthly pivots all at once. This creates too many lines on your screen, leading to analysis paralysis. Keep it clean by focusing on daily pivots for day trading.
- Ignoring Macro News Events: Pivot points will fail to hold if high-impact economic news releases create extreme volatility.