PIVOT POINTS

Calculations and Trading Methods

Floor traders use pivot points to find intraday support/resistance levels. Pivot points are found by a simple calculation which involves the open,high,low and close for the previous day of any particular stock or index. It is said that when a price hovers below a pivot or pivot support/resistance and breaks up through it then its a buy signal (or vice versa for a sell signal). Or if the prices are above the pivot it is considered bullish and if they are below then bearish.

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The most common way to use pivot points are as reference points for entering trades if your other favorite indicators are also giving the same directional signal. Market Makers can use the pivot points to create a market by shifting the price around between levels to entice buyers or sellers of a stock into a trade. This can best be seen on low volume trading days as the prices fluctuate between the calculated points.

Calculations

Many variations exist for calculating the pivot point and its related support and resistance levels.

The traditional method

Pivot point = (H + L + C)/3
First support = (2 * Pivot) - H
First resistance = (2 * Pivot) - L
Second support = Pivot - (H - L)
Second resistance = Pivot + (H - L)

The alternative pivot

Pivot point = (Highyesterday + Lowyesterday + Opentoday)/3

All support an resistance calculations remain the same.These alternative pivot points use todays open in place of yesterdays close to account for opening gaps and extended afterhours trading.

See our auto updating Pivot Point pages for daily Pivot and Cam levels.....Index and Stock Pivots here....Forex Pivot Points here