What are Pivot Points and How to Calculate them?

pivot points on a chart

Ever heard of the term “Pivot Point”? It is a technical analyst that utilizes the average high price, low price, and closing price from the previous trading day. Pivot points are intra-day indicators for stocks. If you notice the stock is trading above the pivot point this is to indicate that the stock is bullish, and if it is below then it is considered bearish. Combining other trend indications is a common practice with traders.There are additional levels above and below the pivot points, marked as S1 and S2 (for Support 1 and Support 2) and R1 and R2 (for Resistance 1 and Resistance 2).

Pivot Point Formula

To Calculate for Pivot (Notated “P”), You take the average of the high, low, and closing price of the stock’s previous days range.

S and R are calculations based on the Pivot for the following day.

Top Reasons to Utilize Pivot Points

•Static and Remain at same prices throughout the day unlike other indicators
•Helps Traders plan out their trading in advance
•Can use S1, S2, R1, and R2 as target prices for trades and stop loss levels.

Limitations of Pivot Points

Pivot points are simple calculations and there is no guarantees that the stock will stop or reverse at certain levels. Some reversal strategies wait for volume at S/R Pivot points for trades. All indicators should only be used with a trading plan.

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