PivotPoints

What Are Pivot Points?

Pivot points are mathematically calculated support and resistance levels based on the previous trading period’s range. They’re a mechanical way to identify key price levels without guessing.

The logic: institutional traders often reference the same levels. Pivot points identify those levels mathematically, making them self-fulfilling for many traders.

The Formulas

Standard Pivot Point:

PP = (Previous High + Previous Low + Previous Close) / 3

First Resistance (R1):

R1 = (2 × PP) - Previous Low

First Support (S1):

S1 = (2 × PP) - Previous High

Second Resistance (R2):

R2 = PP + (Previous High - Previous Low)

Second Support (S2):

S2 = PP - (Previous High - Previous Low)

Practical Example

Previous day’s EURUSD:

• High: 1.1050
• Low: 1.0950
• Close: 1.1000

Calculations:

• PP = (1.1050 + 1.0950 + 1.1000) / 3 = 1.1000
• R1 = (2 × 1.1000) - 1.0950 = 1.1050
• S1 = (2 × 1.1000) - 1.1050 = 1.0950
• R2 = 1.1000 + (1.1050 - 1.0950) = 1.1100
• S2 = 1.1000 - (1.1050 - 1.0950) = 1.0900

Today’s traders watch 1.1000, 1.1050, 1.0950, 1.1100, 1.0900.

Why Pivot Points Work

Pivot points work because:

1. Mechanical calculation — no bias, no opinion
2. Widely used — if everyone watches them, they self-fulfill
3. Simplicity — easy to calculate and remember
4. Institutional reference — many institutions start their day with pivot levels
5. Historical accuracy — in ranging markets, price oscillates between S1 and R1 consistently

Using Pivot Points in Your System

Intraday strategy:

1. Calculate daily pivot points before market open
2. Buy at S1 with target at PP
3. Buy at S2 with target at S1
4. Sell at R1 with target at PP
5. Sell at R2 with target at R1
6. Use strict risk management — if price breaks support, exit

Swing trading:

1. Use weekly pivot points
2. S1 is support; R1 is resistance
3. Place stops beyond S2 and R2
4. Scale in / out at multiple levels

Pivot Points by Timeframe

• Daily pivots — best for intraday day trading (1-4 hour holds)
• Weekly pivots — good for swing traders (multi-day holds)
• Monthly pivots — structural support/resistance (longer-term trades)
• Hourly pivots — mostly noise for most traders, useful only for scalpers

Limitations of Pivot Points

• Don’t work in strong trends — price might break through all levels
• Require support from price action — a pivot level isn’t a reversal by itself
• Less useful when ranges are wide — wide previous day means wide R1-S1 spread
• Useless in low-volatility markets — no help if price barely moves

Trading Pivot Point Levels

At support (S1 or S2):

1. Price approaches level
2. Candle creates reversal pattern (hammer, bullish engulfing, doji)
3. Volume shows buying
4. Enter long with stop below the level
5. Target at PP or R1

At resistance (R1 or R2):

1. Price approaches level
2. Candle creates reversal pattern
3. Volume shows selling
4. Enter short with stop above the level
5. Target at PP or S1

Using Pivots in Your Journal

Track:

• How many times did S1 hold as support? R1 as resistance?
• Which levels were most reliable?
• Did you make more money on S1/R1 trades or S2/R2 trades?
• Did pivot points work better in ranging markets than trending ones?
• What’s your actual win rate on pivot-level bounces?

The Takeaway

Pivot points are a framework, not a system. They identify where the market is watching. Your job is to trade the reaction at those levels, not just the levels themselves. A pivot level with a weak candle is a failed setup. A pivot level with a strong reversal candle is a trade.

Use pivots as your support/resistance grid. Add price action confirmation. That combination is potent.