Pivot points

Pivot points are support and resistance levels that technical analysts use to pinpoint potential reversals in price over time. While the levels were originally used by floor traders to set key levels to watch during the day, technical analysts have expanded upon the concepts to develop at least five different types of pivot points used in the modern day. 

The original pivot point was a relatively simple concept – the average of the high, low, and close price for a given period was a crucial level for the following period. Working off of this figure, additional areas of support and resistance could be identified. A move below the pivot point was a bearish signal, while a move upon the pivot point was a bullish signal. Traders would then watch the support and resistance levels for additional insights. 

Pivot point, support and resistance can be calculated as follows:

  • Pivot Point = (High + Low + Close) / 3
  • Support (S1) = (Pivot Point x 2) – High
  • Support (S2) = P – (High – Low)
  • Resistance (R1) = (Pivot Point x 2) – Low
  • Resistance (R2) = P + (High – Low) 

Pivot Points

 

How to use pivots intraday
Always remember that the pivot is the most important level. When the market is above the pivot it’s a bullish signal and when the market is below the pivot, it’s bearish. Accordingly, some traders will only buy when the market is above the pivot, and they will only take short trades when the market is below the pivot. The other support and resistance levels are usually very good levels to take profits and manage the trade.


Support and resistance price

This is a concept in technical analysis that says that the price of a stock tends to stop and move in the opposite direction when it hits certain predetermined price points.

Support level: This is a level at which the price of a stock does not fall down any further. The price is likely to bounce back and moves up in the opposite direction. This is a level where the demand from buyers is expected to be much higher than that of sellers.

Resistance level: A resistance level is the opposite of a support level. It is a price point (ceiling) at which the stock price is not expected to rise any higher. This is a price point at which there are more sellers than buyers in the market for the particular stock.

Breakouts in levels
The support and resistance levels give the trader an idea about the price movement of a stock. However, it is entirely possible that the stock price breaks through these levels. And when this happens (as it often does), a new support and resistance level is created. That is, if the support level is breached, the price of the stock continues to fall until it reaches a new support level. And if the resistance level is breached, the price of the stock continues to rise until it reaches a new resistance level.