What are pivot points? Pivot points are key areas where price may find support or resistance. Pivot points constitute one of the most unbiased determinants of support and resistance because they are calculated using standard measurements and followed by almost every major player in the market, which serves to reinforce their accuracy.
Pivot points are not randomly determined; they are derived from a formula which is based on the previous day’s high, low and closing prices. Usually, three support pivots, three resistance pivots and a central pivot are used on a one hour chart to illustrate the pivot points. They are calculated as follows:
- Central Pivot point (PP) = (High + Low + Close) / 3
- First resistance (R1) = (2 x PP) – Low
- First support (S1) = (2 x PP) – High
- Second resistance (R2) = PP + (High – Low)
- Second support (S2) = PP – (High – Low)
- Third resistance (R3) = High + 2(PP – Low)
- Third support (S3) = Low – 2(High – PP)
To get the values of the previous day’s data, switch the chart to a daily chart and obtain the high, low and closing price for the candle which illustrates the previous day’s price action.
These days, many traders prefer to use pivot point calculators, which will simply draw the lines corresponding to the pivot points on the chart when applied to it.
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