# Pivot Point

In this article, one can understand the pivot point and its implementation, which is a very important level for traders.

Pivot means the central point on which something turns or balances. Pivot points are the significant levels traders can use to determine price action based on potential support/resistance levels. It uses the prior period’s high, low and close to estimate future support and resistance levels. Traders believe that the price movement pays respect to these levels. This indicator was formulated for the floor traders originally, where they would calculate support and resistance. Traders use the to determine the entry and exit points along with stop-losses and targets.

## How to calculate pivot points in trading?

There are several methods for calculating pivot points, the most common of which is the five-point system, a.k.a. the Standard Pivot Points.

Pivot Point (P) = (High + Low + Close)/3

Support 1 (S1) = (P x 2) – High

Support 2 (S2) = P  –  (High  –  Low)

Resistance 1 (R1) = (P x 2) – Low

Resistance 2 (R2) = P + (High  – Low)

High, Low, Close depends on the timeframe one is analyzing. Generally, Pivot Points are used for intraday trading, so yesterday’s High, Low and Close are used. In 24-hour markets, such as the currency market, pivot points are calculated using New York closing time (4 p.m. E.S.T.). Also, some traders choose to use GMT for the open and close of a trading session.

## Pivot Points for Time-frames

While initially designed for floor traders, the concepts behind Pivot Points can be applied across various timeframes.

 Timeframe of charts used High, low, and close based on 1,5,10 and 15 min. Data of previous day 30, 60, and 120 min. Data of the previous week. Daily charts Data of previous month Weekly or Monthly charts Previous year data

## Types of Pivot Point in Trading

Alternative Methods: Another way to use the five-point system is the inclusion of the opening price in the formula as shown below:

Pivot Point (P) = (Today’s opening + Yesterday’s High

+ Yesterday’s Low + Yesterday’s Close)/4

Fibonacci Pivot Points: Its calculation is the same as Standard Pivot Points except for the fact that Fibonacci multiples are added/subtracted from the resistance and support levels, respectively.

 Target Formula Pivot Point (P) (High + Low + Close)/3 Support 1 (S1) P – [.382 * (High  –  Low)] Support 2 (S2) P – [.618 * (High  –  Low)] Support 3 (S3) P – [1 * (High  –   Low)] Resistance 1 (R1) P + [.382 * (High  –  Low)] Resistance 2 (R2) P + [.618 * (High  –  Low)] Resistance 3 (R3) P + [1 * (High  –   Low)]

Demark Pivot Points: It was developed by Tom DeMark, founder and C.E.O. of DeMARK Analytics. This system uses the following rules:

 Conditions Calculations Tomorrow’s projections Today’s CloseToday’s Open High+ Low+Close+Low =P High = P/2 – Low Low = P/2 – High Today’s Close=Today’s Open High+ Low+Close+Close =P High = P/2 – Low Low = P/2 – High