A pivot point is a price level calculated from the previous day’s high, low and close. It acts as the day’s central reference level. From it, traders calculate support levels (S1, S2) below and resistance levels (R1, R2) above. If price stays above the pivot point, traders lean bullish. Below it, they lean bearish.
What are pivot points?
Professional traders and market makers use pivot points to identify potential support and resistance levels.
Simply put, a pivot point and its support/resistance levels are areas at which the direction of price movement can possibly change.
The reason why pivot points are so enticing?It’s because they are OBJECTIVE.
Unlike some of the other indicators that we’ve taught you about already, there’s no discretion involved.
In many ways, forex pivot points are very similar to Fibonacci levels. Because so many people are looking at those levels, they almost become self-fulfilling.
The major difference between the two is that with Fibonacci, there is still some subjectivity involved in picking Swing Highs and Swing Lows.With pivot points, forex traders typically use the same method for calculating them.
Many traders keep an eye on these levels and you may want to do so also.
Pivot points are especially useful to short-term traders who are looking to take advantage of small price movements.
Just like normal support and resistance levels, forex traders can choose to trade the bounce or the break of these levels.
Range-bound traders use pivot points to identify reversal points. They see pivot points as areas where they can place their buy or sell orders.
Breakout forex traders use pivot points to recognize key levels that need to be broken for a move to be classified as a real deal breakout.
Here is an example of EUR/USD pivot points plotted on a 1-hour chart:
As you can see here, horizontal support and resistance levels are placed on your chart.
And look…they’re marked out nicely for you! How convenient is that?!
Pivot Point Lingo
Here’s a quick rundown on what those acronyms mean:
- PP is the pivot point, the central level.
- S1, S2, S3 are support levels below PP. S1 is the closest.
- R1, R2, R3 are resistance levels above PP. R1 is the closest.
Pivot Point Formula
The most common method is the standard, or “floor,” pivot point. It uses the previous day’s high (H), low (L) and close (C):
- Pivot point (PP) = (H + L + C) ÷ 3
- R1 = (2 × PP) − L
- S1 = (2 × PP) − H
- R2 = PP + (H − L)
- S2 = PP − (H − L)
Here’s an example on EUR/USD.
Yesterday’s high was 1.0900, the low was 1.0800 and the close was 1.0880.
| Level | Calculation | Result |
|---|---|---|
| R2 | 1.0860 + (1.0900 − 1.0800) | 1.0960 |
| R1 | (2 × 1.0860) − 1.0800 | 1.0920 |
| PP | (1.0900 + 1.0800 + 1.0880) ÷ 3 | 1.0860 |
| S1 | (2 × 1.0860) − 1.0900 | 1.0820 |
| S2 | 1.0860 − (1.0900 − 1.0800) | 1.0760 |
Forex trades around the clock, so most traders use the New York close at 5:00 p.m. Eastern Time as the end of the trading day.
That’s 21:00 UTC when the U.S. is on daylight saving time and 22:00 UTC the rest of the year.
You don’t have to do this math by hand. Our pivot point calculator does it for you, and the next lesson walks through the full pivot point formula, including S3 and R3.
But don’t get too caught up in thinking “S1 has to be support!” or “R1 has to be resistance.”
Price doesn’t always respect the labels. When price breaks below S1, for example, that old support level can turn into resistance on the way back up.
You’ll see how to trade both the bounce and the break in the next few lessons.
In the following lessons, you’ll learn the full pivot point calculation, other types of pivot points like Fibonacci, Camarilla and Woodie, and, most importantly, how to range trade and trade breakouts with pivot points!
Pivot Points FAQ
What does pivot mean in trading?
In trading, a pivot is a price level where the market may change direction. A pivot point is a specific calculated level: the average of the previous period’s high, low and close.
Traders watch it along with the support and resistance levels derived from it, because many other traders are watching the same levels.
What are daily pivot points?
Daily pivot points are calculated from the previous day’s high, low and close, and they stay the same for the whole trading day. Most forex traders use the 5:00 p.m. New York close to define the day.
Weekly and monthly pivot points use the prior week’s or month’s prices instead and are popular with longer-term traders.
