Pivot points are a popular technical analysis indicator used in trading to identify potential support and resistance levels for an asset’s price. These levels are calculated based on the asset’s high, low, and closing prices from the previous trading session. They are used to determine levels at which the price is likely to bounce or continue the current trend. In this article, we are going to show the different types of pivot points that exist, their calculation, and some suggestions for their use.

Traders use pivot points to help determine potential entry and exit points for trades. For example, if the price of an asset is approaching a pivot point level that is also a resistance level, traders may consider selling the asset as the price is likely to encounter selling pressure at that level. Conversely, if the price is approaching a pivot point level that is also a support level, traders may consider buying the asset as the price is likely to find support at that level.

Pivot points are most commonly used in intraday trading, but they can also be used for longer-term trades as well. There are several different methods for calculating pivot points, including the standard method, the Woodie’s method, and the Camarilla method, among others.

## Pivot Points Calculation

To calculate the pivot points to trade the next market session,  you need the high (H), low (L), and close (close) of the previous session. The pivot point is simply the average of the high plus low plus close, or (High + Low + Close) / 3. The Support 1 level is calculated by multiplying the Pivot by 2 and then subtracting the previous day’s high. The Resistance 1 level is calculated by multiplying the Pivot by 2 and then subtracting the previous day’s low. The secondary support (S2) and the level of resistance (R2) are calculated using the numbers (P, S1, and R1). And finally, support 3 (S3) and resistance 3 (R3) are calculated using the numbers (P, H, L). The general formulas are the following:

• Resistance 2 (R2) = P + (H – L)
• Resistance 1 (R1) = P + (P – L)
• PP (P) = (H + L + C) / 3
• Support 1 (S1) = PP – (H – P)
• Support 2 (S2) = P – (H – L)
There are variations of the formula, where the support and resistance levels are calculated differently, with slightly varying results. Here are some:
• Resistance 2 (R2) = P + (R1 – S1)
• Resistance 1 (R1) = (P * 2) – L
• Pivot Point (P) = (H + L + C) / 3
• Support 1 (S1) = (P * 2) – H
• Support 2 (S2) = P– (R1 – S1)
• Resistance 2 (R2) = P – (S1 + R1)
• Resistance 1 (R1) = (2*P) – L
• PP (P) = (H + L + C) / 3
• Support 1 (S1) = (2*P) – H
• Support 2 (S2) = P – (R1 + S1)
Certain platforms also calculated levels (S3) and (R3), useful in days of high volatility, while others can calculate intermediate levels, called (M), which also provide additional information. These levels can be useful after a day with high volatility, as the pivot points are very far between them.
• Resistance 3 (R3) = H + 2 X (P – L)
• Resistance2 (R2) = P + H – L
• Resistance 1 (R1) = (2 X P) – L
• PP (P) = (H + L + C) / 3
• Support 1 (S1) = (2 X P) – H
• Support 2 (S2) = P – H + L
• Support 3 (S3) = L – 2 X (H – P)

## Variants of the Pivot Points

### Woodie’s Pivot Points

Woodie´s pivot point system is based on the previous day’s price range and uses different formulas for calculating support and resistance levels compared to the standard method. While Trading Woodie’s pivot points may share similarities with other variations of pivot points, grasping the nuanced distinctions unique to Woodie’s pivot points is crucial to gaining a trading advantage.

The formulas to calculate the Woodie´s pivot point levels are the following:

• PP (Pivot Point) = (High + Low + (2 x Close)) / 4
• S1 = (2 x PP) – High
• S2 = PP – (High – Low)
• S3 = Low – 2 x (High – PP)
• R1 = 2 x PP) – Low
• R2 = PP + (High – Low)
• R3 = High + 2 x (PP – Low)

In this method, the pivot point is given more weightage to the closing price, as compared to other pivot point methods where the closing, opening, and high/low prices are given equal importance. This makes Woodie’s pivot points more sensitive to the closing price, and can provide a better indication of potential levels of support and resistance for traders.

### Tom Demark Pivot Points

This pivot point system is named after its creator, Tom DeMark. It is based on the previous day’s price action and uses a proprietary formula to calculate support and resistance levels. The calculation of these Pivot Points is based on the correlation between the close and the open prices. This differentiates them from the other types of pivot points that are always calculated in the same way.
The formulas to calculate the Demark pivot point levels are the following:
• If Close < Open, then X = High+2×Low+Close
• If Close > Open, then X = 2xHigh+Low+Close
• If Close = Open, then X = High+Low+2xClose
• New Maximum = X / 2 – Low
• New Minimum = X / 2 – High

### Camarilla Pivot Points

This pivot point system was developed by Nick Stott and uses a different formula to calculate support and resistance levels compared to the standard method. Camarilla pivot points are designed to be used for day trading and are calculated using the previous day’s high, low, and closing prices. In the Camarilla method, there are four support and resistance levels calculated on each side of the pivot point. These levels are known as R4, R3, R2, R1, S1, S2, S3, and S4.
The Camarilla pivot point calculation method is popular among traders because it provides more levels of support and resistance than the standard pivot point calculation method. The formulas to calculate the Camarilla levels are the following:
• R4 = (High – Low) X 1.1 / 2 + C
• R3 = (High – Low) X 1.1 / 4 + C
• R2 = (High – Low) X 1.1 / 6 + C
• R1 = (High – Low) X 1.1 / 12 + C
• PP (Pivot Point) = (High + Low + Close) / 3
• S1 = C – (High – Low) X 1.1 / 12
• S2 = C – (High – Low) X 1.1 / 6
• S3 = C – (High – Low) X 1.1 / 4
• S4 = C – (High – Low) X 1.1 / 2
More information on the Camarilla pivot points in the following article: The Camarilla Equation

### Fibonacci Pivot Points

These pivot points are calculated using Fibonacci ratios, which are derived from the Fibonacci sequence (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so on). Traders use these pivot points to identify potential support and resistance levels based on Fibonacci retracements. To calculate Fibonacci pivot points, you will need to first determine the high, low, and close prices for the previous period. This can be any time period, such as a day, week, or month, depending on your trading strategy.
Based on these numbers, the pivot point and support, and resistance are calculated using the following formulas:
• PP (Pivot point) = (High + Low + Close)/3
• S1 = PP – 0.382 * (High – Low)
• S2 = PP – 0.618 * (High – Low) R2 = PP + 0.618 * (High – Low)
• R1 = PP + 0.382 * (High – Low)
• R2 = PP + 0.618 * (High – Low)
• S3 = PP – 1.000 * (High – Low)
• R3 = PP + 1.000 * (High – Low)

Note that the Fibonacci ratios used in these formulas (0.382, 0.618, and 1.000) are based on the Fibonacci sequence.

Once you have calculated these levels, you can use them as potential support and resistance levels when trading. If the price of the asset moves towards one of these levels, it can indicate a potential buying or selling opportunity, depending on the direction of the trend. Traders often use Fibonacci pivot points in conjunction with other technical analysis tools to make trading decisions.

More information on the Fibonacci pivot points in the following article: The Fibonacci Pivot Points

## How to use pivot points in trading?

Pivot points can be used in trading to help identify potential support and resistance levels for an asset’s price, as well as to determine potential entry and exit points for trades. Here are some ways that traders use pivot points in their trading strategies:

1. Support and Resistance Levels: Traders can use pivot points to identify potential support and resistance levels for an asset’s price. The pivot point itself can be used as a level of support or resistance, and traders can also look to the other support and resistance levels calculated from the pivot point (such as S1, S2, R1, R2, etc.) for additional levels to watch.
2. Breakouts: Traders can use pivot points to identify potential breakout levels. If the price of an asset breaks above a resistance level calculated from a pivot point, it may indicate a bullish breakout, while a break below a support level could indicate a bearish breakout.
3. Reversals: Pivot points can also be used to identify potential trend reversals. If the price of an asset is approaching a support level calculated from a pivot point and begins to bounce off that level, it could indicate a potential trend reversal to the upside. Conversely, if the price is approaching a resistance level and begins to turn down, it could indicate a potential trend reversal to the downside.
4. Entry and Exit Points: Traders can use pivot points to determine potential entry and exit points for trades. For example, if the price of an asset is approaching a resistance level calculated from a pivot point and the trader is short the asset, they may consider exiting their position at that level. Conversely, if the price is approaching a support level and the trader is looking to go long, they may consider entering a long position at that level.

## What indicators can be used with pivot points?

There are several indicators that can be used in conjunction with pivot points to enhance their effectiveness in technical analysis. Some of the commonly used indicators with pivot points include:

• Moving Averages: Moving averages are used to smooth out price fluctuations and identify trends. Traders often use a combination of pivot points and moving averages to confirm potential levels of support and resistance.
• Relative Strength Index (RSI): RSI is a momentum indicator that measures the strength of a trend. It can be used with pivot points to confirm potential levels of support and resistance.
• Bollinger Bands: Bollinger Bands are used to measure the volatility of an asset’s price. Traders often use Bollinger Bands with pivot points to identify potential levels of support and resistance.
• Fibonacci retracements: Fibonacci retracements are used to identify potential levels of support and resistance based on key Fibonacci levels. These retracements can be used in conjunction with pivot points to confirm potential levels of support and resistance.
• MACD (Moving Average Convergence Divergence): MACD is a trend-following momentum indicator that is often used to identify potential trend reversals. Traders may use MACD in conjunction with pivot points to confirm potential levels of support and resistance.

By using these indicators in combination with pivot points, traders can potentially increase the accuracy of their technical analysis and make more informed trading decisions.

## Conclusion

In conclusion, pivot points are a useful tool for technical analysis in trading. They help identify potential support and resistance levels for an asset’s price, as well as potential entry and exit points for trades. Pivot points can be calculated using a variety of methods, including the standard method, Fibonacci method, Camarilla method, Woodie’s method, and DeMark method. Traders often use pivot points in conjunction with other technical analysis tools to make trading decisions.

However, it’s important to note that pivot points are not always reliable, and traders should use caution when relying on them for trading decisions. As with any trading tool, it’s important to have a well-developed trading plan and risk management strategy in place when using pivot points to make trading decisions.