Pivot Points

Table of Content

What Are The Pivot Points?

A pivot point is a technical analysis indicator, or calculations, used to determine the overall trend of the market over different time frames. The pivot point itself is simply the average of the intraday high and low, and the closing price from the previous trading day. On the subsequent day, trading above the pivot point is thought to indicate ongoing bullish sentiment, while trading below the pivot point indicates bearish sentiment.

The pivot point is the basis for the indicator, but it also includes other support and resistance levels that are projected based on the pivot point calculation. All these levels help traders see where the price could experience support or resistance. Similarly, if the price moves through these levels it lets the trader know the price is trending in that direction.

A pivot point is an intraday technical indicator used to identify trends and reversals mainly in equities, commodities, and forex markets.

Pivot points are calculated to determine levels in which the sentiment of the market could change from bullish to bearish, and vice-versa.

Day traders calculate pivot points to determine levels of entry, stops, and profit-taking.


Types Of Pivot Points

Pivot Points allow traders to define important support and resistance levels or to identify potential changes in trend direction. For active traders, there are five different types of pivot points that are commonly used by expert technical analysts. Each of these different pivot point trading indicator types provides a slightly different take on the discipline’s established concepts.

Pivot Point (PP), resistance and support values are calculated in different ways, depending on the type of the chosen pivot points. We will list the various types and their calculations below.

The Variables Used In Pivot Points Calculations:

  • PP : Pivot Point
  • R1-R5 : First Resistance – Fifth Resistance
  • S1-S5 : First Support – Fifth Support
  • HIGHprev : Previous High
  • LOWprev : Previous Low
  • OPENprev: Previous Open
  • CLOSEprev: Previous Close
  • OPENcurr : Current Open

Traditional Pivot Points Calculations

Traditional Pivot Points

PP = (HIGHprev + LOWprev + CLOSEprev) / 3
R1 = PP * 2 - LOWprev
S1 = PP * 2 - HIGHprev
R2 = PP + (HIGHprev - LOWprev)
S2 = PP - (HIGHprev - LOWprev)
R3 = PP * 2 + (HIGHprev - 2 * LOWprev)
S3 = PP * 2 - (2 * HIGHprev - LOWprev)
R4 = PP * 3 + (HIGHprev - 3 * LOWprev)
S4 = PP * 3 - (3 * HIGHprev - LOWprev)
R5 = PP * 4 + (HIGHprev - 4 * LOWprev)
S5 = PP * 4 - (4 * HIGHprev - LOWprev)

Classic Pivot Points Calculations

Classic Pivot Points

PP = (HIGHprev + LOWprev + CLOSEprev) / 3
R1 = 2 * PP - LOWprev
S1 = 2 * PP - HIGHprev
R2 = PP + (HIGHprev - LOWprev)
S2 = PP - (HIGHprev - LOWprev)
R3 = PP + 2 * (HIGHprev - LOWprev)
S3 = PP - 2 * (HIGHprev - LOWprev)
R4 = PP + 3 * (HIGHprev - LOWprev)
S4 = PP - 3 * (HIGHprev - LOWprev)

Fibonacci Pivot Points Calculations

Fibonacci Pivot Points

PP = (HIGHprev + LOWprev + CLOSEprev) / 3
R1 = PP + 0.382 * (HIGHprev - LOWprev)
S1 = PP - 0.382 * (HIGHprev - LOWprev)
R2 = PP + 0.618 * (HIGHprev - LOWprev)
S2 = PP - 0.618 * (HIGHprev - LOWprev)
R3 = PP + (HIGHprev - LOWprev)
S3 = PP - (HIGHprev - LOWprev)

Woodie Pivot Points Calculations

Woodie Pivot Points

PP = (HIGHprev + LOWprev + 2 * OPENcurr) / 4
R1 = 2 * PP - LOWprev
S1 = 2 * PP - HIGHprev
R2 = PP + (HIGHprev - LOWprev)
S2 = PP - (HIGHprev - LOWprev)
R3 =  HIGHprev + 2 * (PP -  LOWprev)
S3 =  LOWprev - 2 * (HIGHprev - PP)
R4 = R3 + (HIGHprev - LOWprev)
S4 = S3 - (HIGHprev - LOWprev)

Demark Pivot Points Calculations

Demark Pivot Points

IF  OPENprev == CLOSEprev
    X = HIGHprev + LOWprev + 2 * CLOSEprev
ELSE
    IF CLOSEprev >  OPENprev
        X = 2 * HIGHprev + LOWprev + CLOSEprev
    ELSE
        X = 2 * LOWprev + HIGHprev + CLOSEprev
PP = X / 4
R1 = X / 2 - LOWprev
S1 = X / 2 - HIGHprev

Camarilla Pivot Points Calculations

Camarilla Pivot Points

PP = (HIGHprev + LOWprev + CLOSEprev) / 3
R1 = CLOSEprev + 1.1 * (HIGHprev - LOWprev) / 12
S1 = CLOSEprev - 1.1 * (HIGHprev - LOWprev) / 12
R2 = CLOSEprev + 1.1 * (HIGHprev - LOWprev) / 6
S2 = CLOSEprev - 1.1 * (HIGHprev - LOWprev) / 6
R3 = CLOSEprev + 1.1 * (HIGHprev - LOWprev) / 4
S3 = CLOSEprev - 1.1 * (HIGHprev - LOWprev) / 4
R4 = CLOSEprev + 1.1 * (HIGHprev - LOWprev) / 2
S4 = CLOSEprev - 1.1 * (HIGHprev - LOWprev) / 2
R5 = (HIGHprev / LOWprev) * CLOSEprev
S5 = CLOSEprev - (R5 - CLOSEprev)

Which Pivot Points Do We Use?

Our team at AlgoStorm.com uses the Fibonacci pivot points. We also occassionally check the Camarilla and Demark pivot points depending on the strategy that we are using.


What Do Pivot Points Tell You?

Pivot points are an intraday indicator for trading futures, commodities, and stocks. Unlike moving averages or oscillators, they are static and remain at the same prices throughout the day. This means traders can use the levels to help plan out their trading in advance.

For example, traders know that if the price falls below the pivot point they will likely be shorting early in the session. Conversely, if the price is above the pivot point, they will be buying. S1, S2, R1, and R2 can be used as target prices for such trades, as well as stop-loss levels.

Combining pivot points with other trend indicators is common practice with traders. A pivot point that also overlaps or converges with other moving averages, key levels, or other indicators may provide a good oppportunity for trading.


Limitations of Pivot Points

Pivot points are based on a simple calculation, and while they work for some traders, others may not find them useful. There is no assurance the price will stop at, reverse at, or even reach the levels created on the chart.

Other times the price will move back and forth through a level. As with all indicators, it should only be used as part of a complete trading plan.