General Definition of Pivot Points

What is a pivot point? It is a concept that traders should be familiar with as it is essential to any analysis. It serves as a benchmark for determining the probable market direction in the next session and identifying key support and resistance levels of different assets including forex, stock, and commodity markets. STARTRADER offers daily reports containing these points on the most popular assets.

How Are those points calculated?

Determining the pivot points involves calculating past prices for a given period. To do so, analysts utilize several methods, with the most popular ones being Woodie’s method, Classic method, and Camarilla method, which we will discuss in more detail later on. However, before delving into the methods, let’s elaborate further on the pivot points themselves.

A (PP) is a market turning event that shows price expectations for the next session. If the price is trading above the PP, it indicates a bullish market trend. Conversely, if the price is trading below it, it indicates a bearish market trend.

Pivot points are used to identify key support and resistance levels. The primary support and resistance levels consist of the support levels S1, S2, and S3, and the resistance levels R1, R2, and R3. The S1 support level is the strongest support level and the first level to watch out for when the price is moving down. Similarly, R1 is the strongest resistance level and the first level to watch out for when the price moves up.

Different Types of Calculating Pivot Points:

There are three primary types that are calculated using historical prices:

Classic

To start with, in the classic method, we calculate by adding the previous session’s high, low, and closing price and then dividing the result by three. This average is used as the main PP for the next day. Determining support and resistance levels is based on additional values that were calculated using previous prices. As for additional levels, they can be calculated using the following rules:

Support Level 1	(2 x classic PP) – the previous session’s high
Support Level 2	Classic PP – (high of the previous session – low of the previous session)
Support Level 3	Previous Session Low – (2 x (Classic PP – Previous Session High)
Resistance Level 1	(2 x classic PP) – the low of the previous session
Resistance Level 2	Classic PP + (previous session high – previous session low)
Resistance Level 3	Previous Session High + (2 x (Classic PP – Previous Session Low) PP = (High + Low + Close) / 3S1 = (PP x 2) – High S2 = PP – (High – Low) S3 = Low – 2 x (High – PP)R1 = (PP x 2) – Low R2 = PP + (High – Low)R3 = High + 2 x (PP – Low)

Fibonacci

The Fibonacci method is a calculation approach similar to the Classic PP, with the inclusion of Fibonacci levels to derive additional values. Additional levels can be calculated as follows:

To conclude, Traders and analysts often rely on pivot points to make informed trading decisions once they have started their trading account. By observing whether the price is above or below these points, they can assess the general market trend as bullish or bearish. Additionally, these points help identify key support and resistance levels, enabling traders to determine potential entry and exit points for their trades. However, it is crucial for traders to utilize risk management tools, regardless of their experience in reading charts and performing calculations.