Pivot Point Calculation Method

What is pivot in the share market?

In the context of the stock market, a pivot generally refers to a significant price level where a stock or market may change direction. It is often associated with technical analysis and is used by traders to identify potential reversal points.

One common type of pivot is the pivot point in technical analysis, which is a calculated support and resistance level based on the previous day's high, low, and close prices. Traders use these points to determine potential entry and exit levels for trades.

Additionally, some traders might use the term "pivot" more broadly to refer to any key level or point on a price chart where they anticipate a change in the direction of the stock's price movement.

What is pivot point in trading?

Pivot point trading is a key level derived from the previous day's high, low, and close prices, serving as a reference for potential support and resistance. Traders use pivot points to gauge market sentiment and make decisions on entry and exit points. A price above the pivot suggests a bullish sentiment, while below indicates bearishness. Pivot points are widely used in technical analysis for short-term trading strategies.

How Do We Use Pivot Points (PP)

1. Calculate Pivot Point?

How to calculate pivot points?

Add the high, low, and close prices of the previous day.

Divide the sum by 3.

Pivot point calculation formula is: Pivot Point (PP) = (High + Low + Close) / 3

2. Calculate Support and Resistance Levels:

 Use the PP to calculate support (S1, S2, S3) and resistance (R1, R2, R3) levels.

First Support Level (S1) =(2×PP) −High

Second Support Level (S2) =PP−(High−Low)

Third Support Level (S3) =Low−2×(High−PP)

First Resistance Level (R1) =(2×PP) −Low

Second Resistance Level (R2) =PP+(High−Low)

Third Resistance Level (R3) =High+2×(PP−Low)

Here:

• High is the highest price of the previous day.

• Low is the lowest price of the previous day.

• Close is the closing price of the previous day.

These calculations provide levels that traders often use as reference points for potential support and resistance in the current trading day. 

The different types of pivot points spin around the main pivot point or daily pivot.

Once the calculation of the main pivot is done, this is then used to calculate the other successive pivots points.

The pivot points above the daily pivot are termed resistance pivots, notably R1, R2, etc.

If they are below, they are support pivots, termed as S1, S2, etc.

They are mostly calculated using a 5-point-system. It consists of the following:

The median pivot point (PP)

Two resistance levels (R1) and (R2)

Two support levels (S1) and (S2)

3. Mid-Pivot Points

Pivot points that are between the pivots are called mid-pivots.

The mid-pivot between the S1 and S2 is termed as M1.

The mid-pivot between the S1 and the main pivot is M2 and it goes in the same order

Mid-pivots are half way between the main pivot points. The calculations for mid-pivots:

M1 = (S2+S1)/2

M2 = (S1+PP)/2

M3 = (R1+PP)/2

M4 = (R2+R1)/2

4. Interpretation:

• • If the current price is above the PP, it's considered bullish; If the current price is below the PP, it’s considered bearish.

  • Use support levels as potential buying zones and resistance levels as potential selling zones.

  • Each level of pivot point can be used for support or resistance. For instance, level R1 will usually be a strong resistance level.

  • It is to be noted that, if the price breaks through and returns, it will also be a strong support level. The more pivots that line up, the greater the potential will be for the price to reach those levels. 

  • It is a general opinion that, if the price is below the main pivot point, it is assumed to be a negative response and vice versa if it’s above the main pivot point. There is durability in numbers. 

  • Hence the more queue of pivots ensures a higher probability for the price to react at those levels. For instance, if a weekly and a daily pivot point are at the same price level, this will ensure considerable support or resistance level.

5. Trading Strategies:

• • Breakout: If the price breaks above a resistance level, it may indicate an upward trend.

  • Pullback: If the price pulls back to a support level, it could be a buying opportunity.

  • Reversal: Watch for price reactions around pivot points for potential trend reversals.

6. Combine with Other Indicators:

• • Use pivot points in conjunction with other technical indicators to confirm signals.

Types of Pivot Points

There are several types of pivot points used in trading, each with its own calculation method. The most common types include:

1. Standard Pivot Points:

• Pivot Point (PP) is calculated using the high, low, and close of the previous day.

• Support (S1, S2, S3) and resistance (R1, R2, R3) levels are derived from the PP.

2. Fibonacci Pivot Points:

• Similar to standard pivot points but uses Fibonacci ratios to determine support and resistance levels.

• Levels are often at or near key Fibonacci retracement levels.

3. Camarilla Pivot Points:

• Developed to provide more precise levels compared to standard pivots.

• Uses a different formula to calculate support and resistance levels.

4. Woodie's Pivot Points:

• PP is calculated using the high, low, and close, but it emphasizes the closing price more than the standard method.

• Support and resistance levels are calculated differently compared to the standard method.

5. DeMark Pivot Points:

• Developed by Tom DeMark.

• Uses different formulas based on market open and close relationships to calculate pivot points.

6. Classic Pivot Points:

• Similar to standard pivot points but uses the midpoint between the open and close prices in the calculation.

• Support and resistance levels are then determined.

Traders may choose a specific type of pivot point based on personal preference, trading style, or the perceived effectiveness of a particular method in a given market. It's essential to understand the calculations and nuances of each type before incorporating them into a trading strategy.

Pivot Point Trading Strategy

A pivot point trading strategy involves using key support and resistance levels derived from pivot points to make trading decisions. Here's a simple pivot point trading strategy:

1. Identify Pivot Points:

• Calculate daily pivot points (PP) using the high, low, and close prices from the previous day.

2. Determine Market Sentiment:

• If the current price is above the pivot point, it suggests a bullish sentiment; if below, it indicates a bearish sentiment.

3. Trading Decisions:

• Long (Buy): Consider buying if the price is above the pivot point, targeting the first resistance level (R1).

• Short (Sell): Consider selling if the price is below the pivot point, targeting the first support level (S1).

4. Confirmation and Risk Management:

• Use additional technical indicators or chart patterns to confirm signals.

• Set stop-loss orders to manage potential losses.

5. Multiple Time Frames:

• Check pivot points on various time frames for a comprehensive view of the market.

6. Adapt to Market Conditions:

• Adjust the strategy based on changing market conditions and consider pivot points in conjunction with other analysis tools.

Remember, while pivot points can be valuable, no strategy guarantees success, and traders should practice risk management and continuously adapt their approach based on evolving market dynamics.

Application of Pivot Points

• Traders use pivot points to make decisions on market entry, exit, and stop-loss levels.

• Pivot points can be applied to various time frames, from intraday to longer-term charts.

Commodity Pivot Points

what is the pivot point in commodity trading? In commodity trading, a pivot point is a calculated level based on the previous day's high, low, and close prices. It serves as a reference point to identify potential support and resistance levels. Traders use pivot points to make decisions about market entry and exit points, with the pivot itself and additional support (S1, S2, S3) and resistance (R1, R2, R3) levels indicating potential price movements. The pivot point acts as a pivotal marker in determining the overall market sentiment for the commodity.

Pivot Point Calculator

The charting packages help with automated calculations.

Enrich template and pivot points

We can download the MT4/ Ami Broker template to change your MT4 charts to the Enrich style and add pivot points to start trading the beginner strategy

Impact of different closing times that affect the calculations

Different markets have different closing prices that will affect the calculations. For instance, the Forex market operates 24 hours. Henceforth finding the closing price is not easy. We need to be consistent with our data by observing the same closing session. The stock exchange is different, as it has a well-defined closing time. Henceforth the closing price can be determined. The forex market has no open and closing times during the week for the market. We need to choose the trading session we wish to use for the closing price.

Most Common Closing Times for The Major Markets

Commodity traders

Market Opening Time: 10 AM

Market Closing Time: 11.30 or 11.45 PM

Market days: Monday to Friday

Calculating weekly and monthly pivots

Weekly calculations: Take OPEN – Sunday night’s session. CLOSE – Friday.

Monthly calculations: Take OPEN from the first day of the month. CLOSE – The last day.

Frequently Asked Questions

How to use pivot point in intraday trading?

1. Identify Pivot Point (PP): Calculate the pivot point using the previous day's high, low, and close prices.

2. Trading Strategy: Intraday traders may consider buying if the current price is above the PP, targeting resistance levels (R1, R2, R3), and selling if below, targeting support levels (S1, S2, S3).

3. Confirmation and Risk Management: Confirm signals with other indicators, set stop-loss orders, and adapt strategies based on real-time market conditions for effective intraday trading with pivot points. You can access real time commodity data through Enrich Money price levels.

Explain weekly pivot point trading strategy?

1. Calculate Weekly Pivot Points: Compute the weekly pivot point (PP) using the high, low, and close prices of the previous week.

2. Trading Approach: Intraday traders may consider long positions if the current price is above the weekly PP, targeting resistance levels, and short positions if below, targeting support levels.

3. Adaptation: Regularly recalculate pivot points weekly and adjust trading strategies based on evolving market dynamics for effective weekly pivot point trading.

Explain pivot point calculator for day trading?

1. Input Data: Enter the high, low, and closing prices of the previous day into the pivot point calculator.

2. Output: The calculator provides the pivot point (PP) and associated support (S1, S2, S3) and resistance (R1, R2, R3) levels.

3. Trading Decision: Day traders use these calculated levels as reference points for entry, exit, and stop-loss decisions during the trading day.

Which pivot points are best for intraday?

1. Standard Pivot Points: Traditional PP, S1, R1 levels are commonly used for intraday trading due to simplicity and widespread acceptance.

2. Camarilla Pivot Points: Some traders prefer Camarilla for its emphasis on recent price action, providing potentially more precise intraday levels.

3. Adapt to Preference: The best pivot points for intraday depend on individual preferences, and traders often experiment to find the method that aligns with their trading style.

What is pivot high and pivot low?

1. Pivot High: A price peak surrounded by lower highs on both sides, indicating a potential reversal from an uptrend to a downtrend.

2. Pivot Low: A price trough surrounded by higher lows on both sides, suggesting a potential reversal from a downtrend to an uptrend.

3. Identification: Traders use pivot highs and lows to recognize key turning points in price trends, helping inform buy or sell decisions.