Pivot Points Trading Tutorial & Calculation

With the help of Pivot Points, support and resistance can be calculated very easily and, above all, uniformly.

There are different Pivot Points. All have one thing in common:

They are calculated from the previous day’s highs and lows (in the daily pivots). Pivots are therefore a popular tool, as they contain the most important aspects of the previous day.

The most important aspects are:

  • Price fluctuation
  • Highest price
  • Lowest price
  • Closing price

Thus, the previous day’s priorities are included in the calculation. Starting from the pivot point, the volatility results in further support or resistance.

The five best-known types of Pivot Points are:

  • Standard Pivot Points
  • Fibonacci
  • Camarilla
  • Woodie
  • DeMark
  • Standard Pivot Points

The best known pivot points are the standard pivots.

The basis is therefore the Pivot Point. This is calculated as follows:

Pivot = ( H + L + C ) / 3

You make an average from the High, Low and Close. The pivot point thus calculated forms the basis for the calculation of further supports and resistances. In general, the Pivot Point can be used in such a way that above the Pivot Point a bullish and below the Pivot Point a bearish market is assumed.

The supports and resistances are calculated as follows:

R3 = H + 2 ( Pivot – L )

R2 = Pivot + ( H – L )

R1 = ( 2 x pivot ) – L

S1 = ( 2 x pivot ) – H

S2 = Pivot – ( H – L )

S3 = L – 2( H – Pivot )

These points are often used as stop loss and take profit. So a possible approach is to look for a short scalp when you reach R3 and a possible long scalp when you reach S3.

Fibonacci Pivot Points

The Fibonacci Pivots calculate the pivot point in the same way as the standard pivot point. It is then multiplied by the known Fiboanacci levels. Many traders work with the 38.2%, 61.8% and 100% retracement. This is also how it is done with the Fibonacci Pivot Points. Since Fibonacci levels are very popular with many traders, it makes sense to include these multipliers in the Pivot Points.

R3 = PP + ((High – Low) x 1,000)

R2 = PP + ((High – Low) x .618)

R1 = PP + ((High – Low) x .382)

PP = (H + L + C) / 3

S1 = PP – ((High – Low) x .382)

S2 = PP – ((High – Low) x .618)

S3 = PP – ((High – Low) x 1,000)

Camarilla Pivot Points

The Camarilla Pivot Points were developed in 1989 by the bond trader Nick Scott.

Compared to the standard Pivot Points, the focus here is more on the closing. With the help of these Pivot Points you calculate eight major levels (4 resistances and 4 supports) and each of these levels is multiplied by a multiplier. The idea behind this is that every price has a natural tendency to go back and test the previous closing.

The idea is therefore similar to the standard pivots. When reaching R3 you should look for shorts and when reaching S1 you should look for longs.

But if R4 or S4 is breached, this indicates a very strong intraday trend and one should trade with the trend.

R4 = C + ((H-L) x 1.5000)

R3 = C + ((H-L) x 1.2500)

R2 = C + ((H-L) x 1.1666)

R1 = C + ((H-L) x 1.0833)

PP = (H + L + C) / 3

S1 = C – ((H-L) x 1.0833)

S2 = C – ((H-L) x 1.1666)

S3 = C – ((H-L) x 1.2500)

S4 = C – ((H-L) x 1.5000)

The interesting thing about the Camarilla Pivot Points is that you can replace the multipliers with your own and thus obtain highly interesting levels depending on the market or currency pair.

Woodie’s Pivot Points

This type of Pivot Points is similar to the calculation of Camilla Pivot Points. Here too, the focus is on the closing. The Closing is therefore evaluated twice.

R2 = PP + High – Low

R1 = (2 X PP) – Low

PP = (H + L + 2C) / 4

S1 = (2 X PP) – High

S2 = PP – High + Low

DeMark’s Pivot Points

DeMark’s Pivot Points can be calculated as follows:

If the Close < Open then X = (H + (L * 2) + C)

If the Close > Open then X = ((H * 2) + L + C)

If Close = Open then X = (H + L + (C * 2))

From this, R1 or S1 and PP can be calculated as follows:

R1 = X / 2 – L

PP = X / 4

S1 = X / 2 – H

FAQ about the Pivot Points

1.) What does the R stand for and what does the S stand for?

The R stands for Resistance and the S for Support

2.) True or False? Pivot points are sufficient in themselves to achieve sustainable trading performance or market analysis?

False.

3.) How can Range Traders profit from Pivot Points?

When the price reaches the upper resistance, there is an opportunity to place a short. If the price reaches the lower support, a long can be placed.

4.) For what kind of traders are the Pivot Points best suited?

Daytrader

5.) If a range trader has entered a long trade at S1, where could the first possible take profit be?

PP – the pivot point. Because the order is as follows: S3 > S2 > S1 > PP > R1 > R2 > R3

6.) Which Closing do traders usually use to calculate the High, Low, Open and Close of the Pivot Points?

New York Closing. Since the Forex market is a 24 hour market, most traders use the New York Closing from the previous day at 04:00 pm EST.

Conclusion on the use of Pivot Points

Most of the time, prices are between R1 and S1. Pivot Points can be used by Range, but also by breakout and trend traders.

Range traders therefore go long near S1 and short near R1.

Breakout traders often place a stop buy above R1 and a stop sell below S1.

Trend traders often use pivot points to identify a bullish or bearish trend and place their take profit near R3 or S3.

The simple use of Pivot Points and the standardized calculation make Pivot Points a very interesting trading tool. If you know for yourself which Pivot Points have a good probability in which market or with which approach, you can obtain good levels with the help of the Pivot Points without having to look for support and resistance in the chart.

However, like all other tools and indicators, Pivot Points are not a holy grail and are not meaningful on their own.


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