Calculate and Interpret Pivot Points

By Stock Research Pro • June 23rd, 2009

Pivot points are technical indicators used to predict the support and resistance levels and to offer cues for trade execution. Pivot point calculations are derived from previous day trading prices and can help traders spot key levels that, when broken, may indicate a breakout (prices passing through areas of support or resistance toward new highs or lows). Many technical traders start their trading day by putting support and resistance lines are in place then watching for securities to strike those entry points. Pivot point strategies are used in a variety of markets, including individual stocks, bonds, commodities, futures contracts, and foreign exchange.

Calculating Pivot Points

Pivot point trading is based on the tendency of securities to “trade between the lines” and seeks to leverage reversals in trends. Pivot points are used as price-based indicators to represent points of rotation and are derived using the high, low, and closing prices from the previous trading day. The following are the most commonly calculated in using pivot points:

• Central pivot point
• First level of support
• First level of resistance
• Second level of support
• Second level of resistance

The pivot point itself represents the primary point of support/resistance, meaning the largest price movement is anticipated to occur at this price point. The other points of support and resistance, while less significant, can still trigger considerable price actions.

Interpreting Pivot Points

Pivot Points can provide traders with exact entry and exit points and can be used in two ways:

• If the pivot point is broken in an upward move, the market is seen as bullish
• If the pivot point is broker in a downward move, the market is seen as bearish

In determining entry and exit points, the trader might choose to place a limit order if the price breaks through resistance or a stop-loss order if a price breaks through support.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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