What are pivot points and how do they work?

Pivot points are one of the easiest ways to find support and resistance in technical analysis. They are levels where price is expected to react.

These levels, which you can calculate from the data of the previous candle, are widely used intraday trading.

There are always many methods that can be used and that are effective. One of them is the calculation of pivot points. Pivot points are a tool that can be very useful, and allows the user to find resistance and supports with a small calculation.

 

What are pivot points, how do they work and how are they calculated?

 

There are many ways to calculate pivot points. In all of them it is necessary to know the minimum, maximum and closing of the previous day.

The most commonly used way to calculate pivot points is done through the following formula:

H = High of the previous day, L = Low of the previous day

C = close of the previous day, P = pivot point, R1 / R2 = resistance 1 / resistance 2, S1 / S2 = support 1 / support 2

Pivot point base

P = (H + L + C) / 3

First support

S1 = (P x 2) – H

First resistance

R1 = (P x 2) – L

Second support

S2 = P – (H – L) = P – (R1 – S1)

Second resistance

R2 = P + (H – L) = P + (R1 – S1)

However, we want to share  with you a calculator that can help you to calculate pivot points in an easy way:

There is and easiest way to calculate pivot points and it is through a technical analysis software platform.

We personally use Tradingview, where you can apply pivot point as an indicator, and it shows you the in real time the Pivot Points when they are developing, very useful when trading in lower time frames.

How they look?

Here we want to show you how they look in the graphic of Tesla, where we can observe that the pivot points are acting as a support and resistance during this uptrend. The price tend to bounce when it get to this technical points.

They mark where to buy and where to sell and also they can help when deciding where to place a stop-loss.

If you want to learn more about Pivot points and how to trade them in the book the Ten Steps to profitable trading there is a large guide on how to swing trading using candlestick charting with pivot point analysis