Pivot point_How to use

[ngocanhno110265]

A pivot point is a price level of significance in technical analysis of a financial market that is used by traders as a predictive indicator of market movement. A pivot point is calculated as an average of significant prices (high, low, close) from the performance of a market in the prior trading period. If the market in the following period trades above the pivot point it is usually evaluated as a bullish sentiment, whereas trading below the pivot point is seen as bearish.

 

Calculation

 

Several methods exist for calculating the pivot point (P) of a market. Most commonly, it is the arithmetic average of the high (H), low (L), and closing (C) prices of the market in the prior trading period: P = (H + L + C) / 3.

Sometimes, the average also includes the previous period's or the current period's opening price (O): P = (O + H + L + C) / 4.

In other cases, traders like to emphasize the closing price, P = (H + L + C + C) / 4, or the current periods opening price, P = (H + L + O + O) / 4.

 

he first and most significant level of support (S₁) and resistance (R₁) is obtained by recognition of the upper and the lower halves of the prior trading range, defined by the trading above the pivot point (H − P), and below it (P − L). The first resistance on the up-side of the market is given by the lower width of prior trading added to the pivot point price and the first support on the down-side is the width of the upper part of the prior trading range below the pivot point.

• R₁ = P + (P − L) = 2×P − L
  
• S₁ = P − (H − P) = 2×P − H
  

Thus, these levels may simply be calculated by subtracting the previous low (L) and high (H) price, respectively, from twice the pivot point value:

 

The second set of resistance (R₂) and support (S₂) levels are above and below, respectively, the first set. They are simply determined from the full width of the prior trading range (H − L), added to and subtracted from the pivot point, respectively:

• R₂ = P + (H − L)
  
• S₂ = P − (H − L)
  

Commonly a third set is also calculated, again representing another higher resistance level (R₃) and a yet lower support level (S₃). The method of the second set is continued by doubling the range added and subtracted from the pivot point:

• R₃ = H + 2×(P − L)
  
• S₃ = L − 2×(H − P)
  

This concept is sometimes, albeit rarely, extended to a fourth set in which the tripled value of the trading range is used in the calculation.

Qualitatively, the second and higher support and resistance levels are always located symmetrically around the pivot point, whereas this is not the case for the first levels, unless the pivot point happens to divide the prior trading range exactly in half.

 

The pivot point itself represents a level of highest resistance or support, depending on the overall market condition. If the market is directionless (undecided), prices may fluctuate greatly around this level until a price breakout develops. Trading above or below the pivot point indicates the overall market sentiment. It is a leading indicator providing advanced signaling of potentially new market highs or lows within a given time frame.

The support and resistance levels calculated from the pivot point and the previous market width may be used as exit points of trades, but are rarely used as entry signals

[surya77]

Pivot point is more help you to know support and rsistence level like GBPUSD, 1.6453, 1.6398, 1.6365, 1.631, 1.6277, 1.6222, 1.6189. so if we know the suppor resistence we know when we can entry the market.

[myregister]

Pivot point is more help you to know support and rsistence level like GBPUSD, 1.6453, 1.6398, 1.6365, 1.631, 1.6277, 1.6222, 1.6189. so if we know the suppor resistence we know when we can entry the market.

Also you need to understand about the breakout, if one pair break one support/resistance, the price could rise higher or fall deeper. Also when the session is open you can check if the price is open above or below pivot. With price opened above pivot then it means there are higher chance for the price to rise, or vice versa.