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A Trader’s Guide to Pivot Points
What Are Pivot Points?
Pivot points are a popular technical indicator used by traders to help them predict significant areas in the market, such as potential support and resistance levels. These points are calculated by averaging the high, low, and closing prices of a previous period (which could be a day, a week, or a month) to establish possible trading zones for short-term traders. It’s important to remember that traders calculate pivot points in different ways depending on their strategic goals, but in this report, we will focus on a default calculation.
Understanding Pivot Points
When a market trades above its previous pivot point (P), it is considered a bullish signal. Conversely, trading below P is seen as bearish. Day traders often use pivot points to help them spot short-term trends. For example, if EUR/USD is trading above the previous day's P, traders might anticipate a continued climb and look to buy the pair before it reaches the next pivot point. This same style of trading can be applied on the bearish side as well, just in reverse.
Finding Support and Resistance with Pivot Points
Pivot points are not only used to gauge current price action, but also to identify potential upcoming support and resistance levels in a specific trading session. These levels are calculated as follows:
Support Levels: S1, S2, S3
Resistance Levels: R1, R2, R3
These levels appear on a chart as parallel lines to P with the corresponding number next to them, such as S1 or S2, and can serve as possible profit targets or areas to open new positions.
Calculating Pivot Points
While you don’t need to manually calculate pivot points, especially if you’re on TradingView and utilizing our data feeds (i.e.GBPUSD), understanding the calculations can be beneficial to employing these core concepts as you get started.
To calculate P:
Find the high, low, and closing prices for the previous period. Add these prices together and divide them by three. Then, mark this level on your chart as P.
The calculations for S are more complex, but once again follow specific formulas that can be beneficial to understand:
S1 = (P x 2) - Previous High
S2 = P - (R1 - S1)
S3 = P - (R2 - S2)
Pivot Points Factsheet
Pivot points are a versatile tool that can help traders make informed decisions by identifying key levels in the market. Whether you're a day trader or a swing trader, incorporating pivot points into your strategy can help you prepare and visualize upcoming zones on an intraday chart.
Did you learn something new?
Our team of researchers and market specialists will be sharing more educational content, so be sure to follow our TradingView account for instant updates. Also, be sure to check out our latest ideas here.
Thanks for reading!
The FOREX.com team
Pivot points are a popular technical indicator used by traders to help them predict significant areas in the market, such as potential support and resistance levels. These points are calculated by averaging the high, low, and closing prices of a previous period (which could be a day, a week, or a month) to establish possible trading zones for short-term traders. It’s important to remember that traders calculate pivot points in different ways depending on their strategic goals, but in this report, we will focus on a default calculation.
Understanding Pivot Points
When a market trades above its previous pivot point (P), it is considered a bullish signal. Conversely, trading below P is seen as bearish. Day traders often use pivot points to help them spot short-term trends. For example, if EUR/USD is trading above the previous day's P, traders might anticipate a continued climb and look to buy the pair before it reaches the next pivot point. This same style of trading can be applied on the bearish side as well, just in reverse.
Finding Support and Resistance with Pivot Points
Pivot points are not only used to gauge current price action, but also to identify potential upcoming support and resistance levels in a specific trading session. These levels are calculated as follows:
Support Levels: S1, S2, S3
Resistance Levels: R1, R2, R3
These levels appear on a chart as parallel lines to P with the corresponding number next to them, such as S1 or S2, and can serve as possible profit targets or areas to open new positions.
Calculating Pivot Points
While you don’t need to manually calculate pivot points, especially if you’re on TradingView and utilizing our data feeds (i.e.
GBPUSD), understanding the calculations can be beneficial to employing these core concepts as you get started. To calculate P:
Find the high, low, and closing prices for the previous period. Add these prices together and divide them by three. Then, mark this level on your chart as P.
The calculations for S are more complex, but once again follow specific formulas that can be beneficial to understand:
S1 = (P x 2) - Previous High
S2 = P - (R1 - S1)
S3 = P - (R2 - S2)
Pivot Points Factsheet
Pivot points are a versatile tool that can help traders make informed decisions by identifying key levels in the market. Whether you're a day trader or a swing trader, incorporating pivot points into your strategy can help you prepare and visualize upcoming zones on an intraday chart.
Did you learn something new?
Our team of researchers and market specialists will be sharing more educational content, so be sure to follow our TradingView account for instant updates. Also, be sure to check out our latest ideas here.
Thanks for reading!
The FOREX.com team
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.