Before reading through this lesson, you should have previously read through:

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Pivot points are horizontal support and resistance lines

Pivot points are horizontal support and resistance lines placed on a price chart. The prices that they are placed at are calculated from the previous periods' price data. For example, daily pivot points use the data from the previous day. They are important because they are prices at which traders enter or exit the markets.

They make strong levels of support and resistance because many traders, as well as financial institutions and banks, use them.

Pivot points are support and resistance lines that are automatically plotted on your chart.

Before computers and charts became a key tool that traders use so effectively, floor traders determined key buying and selling levels using calculations based on the data from the previous trading day. Pivot points are still extensively used today and they are very useful in determining entry and exit points.

Although any time period can be used to calculate them, daily and weekly pivot points are the most commonly used. Monthly pivot points are also common, although they are not used as much as daily or weekly.

The following chart shows you what they look like on a chart:

Pivot points

How to use pivot points

An important aspect to know about pivot points is that each level can be used for support or resistance. For example, the level R1 will generally be a strong resistance level. However, if the price breaks through and comes back down to it, it will also be a strong support level.

Each pivot point level can be used for support or resistance. The more pivots that line up, the greater the potential will be for price to react at those levels.

If the price is below the main pivot point, it means that market sentiment is likely to be negative and if the price is above the main pivot point, it is likely to be positive.

As with all support and resistance levels, there is strength in numbers. The more pivots that line up, the greater the potential will be for price to react at those levels. So for example, if a weekly and a daily pivot point are at the same price level, this will make an even more substantial support or resistance level.

Types of pivot points

There are different types of pivot points that are calculated and they revolve around what is called the main pivot point or daily pivot, the point at which the market is said to “pivot” around. After the main pivot point has been calculated, this is then used to calculate the other corresponding pivots points.

The pivot points above the daily pivot are labelled as resistance pivots, notably R1, R2, etc. If they are below, they are support pivots, labelled S1, S2, etc.

They are mostly calculated using a 5-point-system, comprised of:

  • The median pivot point (PP)
  • Two resistance levels (R1) and (R2)
  • Two support levels (S1) and (S2)

Mid-pivot points

Pivot points that are between the pivot points are call mid-pivots. They are labelled differently. The mid-pivot between the S1 and S2 is labelled as M1, the mid-pivot between the S1 and the main pivot is M2 and so on.

Calculating pivot points

Where the calculations state a price, it is referring to the price of the previous period, for example the closing price is the previous day’s closing price.

Main pivot/Pivot point

Pivot point = (Highest price + Lowest price + Closing price) / 3

The main pivot point is the daily pivot point and all other levels (R1, S1, etc.) revolve around this. Pivot points above the daily pivot are resistance lines – R1, R2, etc. Pivot points below the daily pivot are support lines – S1, S2, etc.

The first resistance level R1
R1 = (Pivot point *2) – Lowest price

The second resistance level R2

R2 = Pivot point + (Highest price – Lowest price)

The first support level S1

S1 = (Pivot point*2) – Highest price

The second support level S2

S2 = Pivot point – (Highest price – Lowest price)

Calculating mid-pivots

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

M1= (S2+S1)/2
M2= (S1+PP)/2
M3 = (R1+PP)/2
M4 = (R2+R1)/2

Trading platforms have tools to calculate pivot points

It is important to note that there are many charting packages that provide these calculations automatically and others, such as MetaTrader 4, have the ability to install customised pivot point calculators. However, it is still useful to know the calculations in case you ever need them.

Click below to learn how to download and install a custom set of pivot points:

Article
Download the MT4 tradimo template to change your MT4 charts to the tradimo style and add pivot points to start trading the beginner strategy.
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Different closing times will affect the calculations

Different markets have different closing prices that will affect the calculations.

The forex market, for example, is open for 24 hours and so the closing price is not easy to identify.

Different markets have different closing prices. This affects calculations, so you should always stay consistent with your data by always using the same closing session.

In contrast, the stock exchange has a clearly defined closing time and so the closing price is easily determined. However, with the forex market there are no open and closing times during the week for the market as a whole. You must therefore choose which particular trading session you wish to use for the closing price.

The following is a list of the most common closing times for the major markets

  • Stock traders use the settlement price from the close of business day at 16:00 pm EST.
  • Futures traders in the E-mini S&P, NASDAQ, and Russell contracts use the close of 15:15 CT. The CBOT Mini Dow contract uses 16:00 CT.
  • Forex traders mostly use either 16:00 EST for New York bank settlements close or London midnight for the closing price.

Calculating weekly and monthly pivots

  • For weekly calculations, take the open from Sunday night’s session and use the close on Friday.
  • For the month, take the open from the first day of the month and use the last day for the close.

Summary

So far, you have learned that ...

  • ... pivot points are horizontal support and resistance lines.
  • ... they can be used in the same way as normal support and resistance levels.
  • ... the main pivot is calculated using the previous period’s high, low and close price.
  • ... each corresponding pivot point is calculated from the main pivot point.
  • ... pivot points that are above the main pivot are resistance pivots and are labels as R1, R2 etc.
  • ... pivot points that are below the main pivot are support lines and are labelled as S1, S2 etc.
  • ... if the pice is above the main pivot point, the market sentiment is generally up and if the price is below the main pivot point then the market sentiment is generally down.
  • ... different markets have different closing times that affect the calculations. This means that you should be aware of the closing times of the markets you are trading in.

  • Hi,
    So many types of pivot points. which one is used with the beginner strategy?
    Thanks.
  • Hi JHTAN they are all used, let me explain it to you.

    Price will often go up and down this pivot levels, and when you get a trade opportunity with the beginner strategy you will use the next available pivot.

    This is mainly why we plug all pivot and mid pivots on our charts.
  • Hey JHTAN,

    for better understanding I recommend you to go through our beginner strategy lessons. Everything important is in those articles.

    And if you have any question, ask us in the forum/ comment and we´ll do our best to help you. happy
  • Don't forget to join our daily coaching sessions every day at 18:00 GMT
  • I can't join the daily coaching session because of the time zone. may you record it?
  • Hey, you can see the previous coaching sessions here:
    Daily coaching sessions
  • where I download the indicator?
  • Hi paycoder,

    I saw our comment in this so I suppose that everything is fine now. happy

    If you have any other questions, feel free to ask. We will be happy to help you.
  • So many types of pivot points. which one is used with the beginner strategy?
    Thanks.
  • It seams to me that the chart itself without any pivot points already provides all the information necessary to make an informed decision based on the current trend. Identifying trends and price channels is a way more superior than basing trading decisions on the data of the previous day which rarely represents the today's situation and hardly predicts anything about next price action. Also with beginners strategy there is hardly any guaranty that the price will ever get to the pivot point, in many situations it gets to the boundary of the price channels, so trading in the direction of the current trend is more helpful than trading in relation to the pivot point calculated on the previous day (at least from my observation so far). I just wander... are the pivot points purely a theoretical discussion? I ask, because I consider to remove them from my chart as they may deceive my attention from what is really going on on the chart...
  • Hi maindbox,

    The pivot points are not just theoretical, they are calculations taken from the previous day's data, and are useful for determining when to enter/exit a market.

    If you are using the beginner strategy to place your trades, it is advised you keep the pivot points on, and use them accordingly.

    However, how you trade is entirely up to you, and if you have a different strategy in which you don't wish to take these in to account, you don't need to have them on your chart. smile

    Either way, the choice is yours smile

    Good luck,
    Emma
  • Teaching Assistant and Community Supporter
    Hi maindbox,
    I personally don't use them but many people do. They just supposed to be important support and resistance levels and if you observe it they often coincide with fib and other important horizontal levels, sometimes even moving averages. They definitely help beginners to automatically identify these levels without discretion, but they are not just for beginners. PP can also be used as volatility measure tool. Just like with any other tool it is up to you if you like it or not, it is not a must to have them, or you can decide just to leave the PP on the chart and get rid of the other S& R and mid lines. Hope that helped. Regards.
    Peter
  • i really like tradimo web interactive full of information about trading and etc..

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