Mastering Pivot Point Calculations: A Guide to Effective Trading Strategies

Pivot Point Calculations: A Guide to Understanding and Using Them


Pivot point calculations are widely used in technical analysis to determine potential support and resistance levels in financial markets. These levels can help traders and investors make more informed decisions about when to enter or exit trades. In this article, we will explore the concept of pivot points, how they are calculated, and how they can be utilized in trading strategies.

What are Pivot Points?

Pivot points are levels that are calculated based on the previous day’s price action. They provide a framework for identifying potential turning points in the market, where the price may reverse its direction. Pivot points are especially popular in the forex market but can be applied to other financial instruments as well.

Calculating Pivot Points

To calculate pivot points, you need the high, low, and close prices from the previous trading session. The most commonly used method is the Standard Pivot Point Formula, which involves the following calculations:

1. Calculate the pivot point (PP) by adding the high, low, and close prices and dividing the sum by three.
– PP = (High + Low + Close) / 3

2. Calculate the first level of support (S1) and resistance (R1):
– S1 = (2 * PP) – High
– R1 = (2 * PP) – Low

3. Calculate the second level of support (S2) and resistance (R2):
– S2 = PP – (High – Low)
– R2 = PP + (High – Low)

4. Calculate the third level of support (S3) and resistance (R3):
– S3 = Low – 2 * (High – PP)
– R3 = High + 2 * (PP – Low)

Using Pivot Points in Trading

Pivot points can be utilized in various ways to enhance trading strategies. Here are some common techniques:

1. Identifying support and resistance levels: Pivot points act as reference points for determining potential support and resistance levels. Traders can use these levels to set profit targets or stop-loss orders.

2. Confirming trend reversals: When the price approaches a pivot point level, it can indicate a potential trend reversal. Traders often look for confirmation through other technical indicators or candlestick patterns before entering a trade.

3. Trading breakouts: If the price breaks above a resistance level or below a support level, it may signal a breakout. Traders can use pivot points to identify these breakout levels and plan their trades accordingly.

4. Scalping opportunities: Pivot points can be used by short-term traders to identify quick scalping opportunities. By focusing on price action around pivot points, traders can aim for small profits within a short time frame.


Pivot point calculations provide traders and investors with valuable insights into potential support and resistance levels in financial markets. By understanding how to calculate and use pivot points, traders can make more informed decisions and improve their trading strategies. However, it is important to remember that pivot points should not be used in isolation but in conjunction with other technical analysis tools for better accuracy and reliability.