Pivot Points
Pivot points are calculated support and resistance levels based on previous period’s high, low, and close. They’re market-generated levels that act as reference points.
How Pivot Points Work
Classic Formula
Pivot (P) = (High + Low + Close) / 3
Resistance 1 (R1) = (P × 2) - Low
Support 1 (S1) = (P × 2) - High
Resistance 2 (R2) = P + (High - Low)
Support 2 (S2) = P - (High - Low)
Resistance 3 (R3) = High + 2 × (P - Low)
Support 3 (S3) = Low - 2 × (High - P)
Pivot Types
Classic (Floor)
Most common. Uses previous high, low, close.
Woodie
Gives more weight to close price.
Camarilla
Tighter levels. Uses H/L range:
Pivot = (High + Low + Close + Close) / 4
R1 = Close + (High - Low) × 1.1/12
S1 = Close - (High - Low) × 1.1/12
Fibonacci
Uses Fibonacci ratios with classic pivot:
R1 = P + (High - Low) × 0.382
S1 = P - (High - Low) × 0.382
How to Use Pivot Points
1. Key Levels
- R1, S1: Primary levels
- R2, S2: Secondary levels
- R3, S3: Extreme levels
2. Bounce Trading
- Price approaches S1 → Potential long
- Price approaches R1 → Potential short
3. Breakout Trading
- Break above R1 → Potential continuation
- Break below S1 → Potential continuation
4. Range Trading
- Sell at R1, buy at S1
- Exit at opposite level
When to Use Pivot Points
Use when:
- Trading ranges
- Need objective levels
- Day trading
Don’t use when:
- Strong trending market
- Needing direction
- Wide stops
Daily Pivot Trading
Morning Setup
- Calculate pivots from previous day
- Watch price vs pivot level
- At R1/S1 → Watch for reaction
- Break → Trade in breakout direction
Session Levels
| Price Action | Implication |
|---|---|
| Above pivot | Bullish |
| Below pivot | Bearish |
| Breaking R1 | Strong bullish |
| Breaking S1 | Strong bearish |
Common Mistakes
1. Using Alone
Mistake: Trading pivots without price action.
Result: False breaks.
Fix: Confirm with price action.
2. Wrong Pivot Type
Mistake: Using classic for breakout trading.
Result: Levels too wide.
Fix: Use Camarilla for tighter ranges.
3. Ignoring Daily Close
Mistake: Using intraday pivots for direction.
Result: No context.
Fix: Use daily pivots for daily bias.
Key Takeaways
- Calculated levels — Based on H/L/C
- Support/resistance — Market-generated levels
- Multiple types — Classic, Woodie, Camarilla
- Day trading — Best for intraday
- Confirm first — Don’t trade alone
Related
indicators.md >>>
range-trading.md >>>
Pivots show key levels. Confirm with price.