📊 What are Pivot Points?
Pivot points are technical indicators used to determine potential support and resistance levels. They're calculated from the previous day's high, low, and close prices, making them popular for day trading and intraday trading strategies.
Introduction to Pivot Points
Pivot points are mathematical calculations that identify potential support and resistance levels. They're widely used by floor traders and day traders to identify key price levels for the trading day.
Why Use Pivot Points?
- Support/Resistance: Identify key levels
- Entry/Exit Points: Clear trading levels
- Daily Reference: New levels each day
- Works on All Timeframes: From M5 to daily
- Simple Calculation: Easy to understand
How to Calculate Pivot Points
Standard Pivot Points
Formula:
- Pivot Point (PP): (High + Low + Close) / 3
- Resistance 1 (R1): (2 × PP) - Low
- Resistance 2 (R2): PP + (High - Low)
- Resistance 3 (R3): High + 2 × (PP - Low)
- Support 1 (S1): (2 × PP) - High
- Support 2 (S2): PP - (High - Low)
- Support 3 (S3): Low - 2 × (High - PP)
Example Calculation
Previous Day:
- High: 1.1100
- Low: 1.1000
- Close: 1.1050
Pivot Points:
- PP: 1.1050
- R1: 1.1100
- R2: 1.1150
- S1: 1.1000
- S2: 1.0950
Pivot Points Trading Strategies
Strategy 1: Bounce Trading
Buy Setup (Support Bounce)
- Price Approaches S1 or S2: Support level
- Look for Bounce: Bullish candlestick pattern
- Confirm with Indicator: RSI, Stochastic
- Enter Long: On bounce
- Stop Loss: Below support (S2 or S3)
- Take Profit: At PP or R1
Sell Setup (Resistance Rejection)
- Price Approaches R1 or R2: Resistance level
- Look for Rejection: Bearish candlestick pattern
- Confirm with Indicator: RSI, Stochastic
- Enter Short: On rejection
- Stop Loss: Above resistance (R2 or R3)
- Take Profit: At PP or S1
Strategy 2: Breakout Trading
Bullish Breakout
- Price Above PP: Bullish bias
- Price Breaks R1: Breakout signal
- Enter Long: On breakout
- Target: R2 or R3
- Stop: Below R1
Bearish Breakout
- Price Below PP: Bearish bias
- Price Breaks S1: Breakdown signal
- Enter Short: On breakdown
- Target: S2 or S3
- Stop: Above S1
Best Timeframes for Pivot Points
Day Trading
- Primary: M15, H1
- Calculation: Daily pivot points
Scalping
- Primary: M5, M15
- Calculation: Daily or intraday pivots
Combining Pivot Points with Other Tools
Pivot Points + Moving Averages
Combination:
- Price at pivot + Above MA = Strong support
- Price at pivot + MA alignment = Strong level
Pivot Points + Fibonacci
Combination:
- Pivot points + Fibonacci levels = Strong confluence
- Multiple levels at same price = High probability
Pivot Points + Candlestick Patterns
Combination:
- Pivot level + Reversal pattern = Strong signal
- Confirms support/resistance validity
Common Pivot Points Mistakes
- Using Wrong Data: Previous day's data incorrect
- Too Many Levels: Focusing on all levels
- No Confirmation: Entering without signals
- Ignoring Context: Not considering trend
- Wrong Timeframe: Using daily pivots on M1
Pivot Points Checklist
Before trading pivot points:
- [ ] Pivot points calculated correctly
- [ ] Price approaching pivot level
- [ ] Bounce/rejection signal present
- [ ] Confirmation (candlestick or indicator)
- [ ] Stop loss set (beyond pivot level)
- [ ] Take profit set (next pivot level)
- [ ] Risk/reward ratio at least 1:2
- [ ] Position size calculated using risk management rules
Advanced Pivot Points Techniques
Weekly Pivot Points
Calculate from weekly high/low/close:
- Use For: Swing trading
- Timeframe: H4, D1
- Hold Time: Days to weeks
Monthly Pivot Points
Calculate from monthly high/low/close:
- Use For: Position trading
- Timeframe: D1, W1
- Hold Time: Weeks to months
Camarilla Pivot Points
Alternative calculation method:
- More Levels: 8 levels instead of 7
- Tighter Levels: Closer together
- Better For: Scalping
When Pivot Points Work Best
Ideal Conditions
- Day Trading: Fresh levels each day
- At Market Open: First few hours
- With Confirmation: Other indicators agree
- Clear Levels: Well-defined pivots
Avoid When
- End of Day: Levels less relevant
- Major News: Can invalidate levels
- Low Liquidity: Wide spreads
- No Confirmation: Unclear signals
Summary
Pivot points are valuable tools for identifying support and resistance levels in day trading. Success requires proper calculation, confirmation, and strict risk management.
Key Takeaways:
- Calculate from previous day's H/L/C
- PP = Main pivot level
- R1/R2/R3 = Resistance levels
- S1/S2/S3 = Support levels
- Trade bounces and breakouts
- Always confirm with other analysis