Pivot points are a valuable tool for both short-term and long-term traders because they can help to identify potential support and resistance levels. They can also be used as key points for managing your trade like profit targets or stop losses and they are most commonly used on daily charts.
What Are Pivot Points
Pivot points are a technical analysis indicator that can be used to determine the overall trend of the market. They are calculated using the high, low, and close prices of a security for a given period of time, and can be used on any timeframe.
Types Of Pivot Points
There are several different types of pivot points, but the most common one is the Standard Pivot Points. Other types of pivot points include Woodie’s Pivot Points, Camarilla Pivot Points and Fibonacci Pivot Points.
Standard
Standard Pivot Points, the most common type of pivot point are calculated by taking the average of the high, low, and close prices from the previous period and applying it to the current one.
The Standard Pivot Point formula is as shown below:
Pivot point (PP) = (High + Low + Close)/3
First resistance level (R1) = 2 x PP – Low
First support level (S1) = 2 x PP – High
Second resistance level (R2) = PP + (High – Low)
Second support level (S2) = PP – (High – Low)
Third resistance level (R3) = High + 2 x (PP – Low)
Third support level (S3) = Low – 2 x (High – PP)
Example
Here are the daily standard pivot points on Exxon Mobil, you can see where the price bounced off of support level three and went all the way up to the original pivot point and fell back to support level one before rising again.
Woodie
The Woodie Pivot Points place more weight on the closing price similar to how a simple moving average and an exponential moving average are different.
The Woodie Pivot Point formula is as shown below:
R2 = PP + High – Low
R1 = (2 X PP) – Low
PP = (H + L + 2C) / 4
S1 = (2 X PP) – High
S2 = PP – High + Low
C – Closing Price, H – High, L – Low
Example
Here are the monthly Woodie Pivot Points on the S&P 500, you can see where the price bounced right off of resistance level one and is now continuing down to the original pivot level.
Camarilla
Camarilla Pivot Points are similar to Woodie’s in that they use the prior day’s closing price and range to find the levels. Instead of 2 resistance levels like the Woodie Pivot Points they have 4 resistance and support levels
The Camarilla Pivot Point formula is as shown below:
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)
C – Closing Price, H – High, L – Low
Example
Here are the monthly Camarilla Pivot Points on Ford Motor Company (f) and you can see where the price bounced between resistance level one and resistance level three before breaking resistance level three and falling back down to find support on resistance level three.
Fibonacci
Fibonacci pivot points are similar to standard pivot points, but they use Fibonacci ratios instead of simple averages.
The Fibonacci Pivot Point formula is as shown below:
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)
C – Closing Price, H – High, L – Low
Example
Here are the weekly Fibonacci Pivot Points on Nvidia and you see where the stock is ranging between resistance level one and the original pivot point.
To learn more about the Fibonacci Ratio see this article How To Trade Using Fibonacci Retracements Guide.
Pivot Point Calculator
You can also calculate pivot points manually for any given asset such as stocks, forex, futures, crypto, bonds, options and more using this Pivot Point Calculator.
Strategies And Tips For Trading Pivot Points
- There are several different ways to trade pivot points. One popular strategy is to buy when the market breaks above a resistance level or sell when the market breaks below a support level.
- Another common strategy is to wait for the market to retrace to a support or resistance level and then enter a trade in the opposite direction.
- Stop losses can be placed below support levels or above resistance levels. Take profit orders can be placed at the next support or resistance level.
It’s also important to keep in mind that pivot points are not exact numbers, so be sure to use other technical indicators to confirm trade signals. Some popular technical indicators that can be used with pivot points include moving averages, stochastic oscillators, and relative strength index (RSI).
