Pivot Points

What Are Pivot Points?

Pivot points are predetermined support and resistance levels calculated from the previous trading period's high, low, and close prices. They are primarily used by intraday traders to identify key price levels before the market opens, providing a roadmap of potential turning points for the upcoming session.

The central pivot point represents the equilibrium price. Above the pivot, the market bias is bullish; below it, bearish. First, second, and third level support (S1, S2, S3) and resistance (R1, R2, R3) levels extend above and below the central pivot, creating a framework of levels where price may stall or reverse.

How Traders Use Pivot Points

Intraday bias is determined by the opening price relative to the central pivot. An open above the pivot suggests bullish bias for the session, with R1 and R2 as targets. An open below suggests bearish bias, with S1 and S2 as targets. This simple framework gives day traders a starting plan each morning.

Support and resistance at pivot levels is often remarkably precise. Because millions of traders and algorithms reference the same calculated levels, buy and sell orders tend to cluster at these prices. First-level pivots (S1, R1) are the most commonly tested, while S3 and R3 are only reached on unusually volatile days.

Bounce trading at pivot levels is a popular strategy. When price approaches S1 or S2 and shows signs of rejection (a wick, a reversal candle, declining momentum), traders buy the bounce with a tight stop below the level. The central pivot or R1 serves as the target. The same logic applies in reverse for short trades at resistance pivots.

Pivot Point Variations

Several variations of the standard formula exist. Fibonacci pivots apply Fibonacci ratios (38.2%, 61.8%, 100%) to the prior range to calculate support and resistance levels. Camarilla pivots produce levels clustered closer to the current price, designed for scalping and short-term trading. Woodie's pivots give extra weight to the closing price.

Many traders combine multiple pivot calculations, focusing on zones where different methods produce similar levels. When a standard S1 aligns closely with a Fibonacci S1, the resulting zone carries enhanced significance.