Pivot points are one of the oldest and most reliable technical analysis tools used by floor traders and institutional professionals. These calculated price levels provide objective support and resistance zones that traders use for intraday entries, exits, and overall market bias. Here is how to master pivot point trading.
What Are Pivot Points?
Pivot points are calculated price levels derived from the previous period's high, low, and close. They create a central pivot point (PP) surrounded by support (S1, S2, S3) and resistance (R1, R2, R3) levels.
Key concept: Pivot points are calculated before the market opens, giving traders predetermined levels to watch. They are self-fulfilling prophecies because so many traders watch the same levels.
How to Calculate Pivot Points
The standard pivot point formula uses the previous day's data:
Central Pivot Point (PP)
PP = (High + Low + Close) / 3
Support Levels
- S1 = (PP x 2) - High
- S2 = PP - (High - Low)
- S3 = Low - 2 x (High - PP)
Resistance Levels
- R1 = (PP x 2) - Low
- R2 = PP + (High - Low)
- R3 = High + 2 x (PP - Low)
Calculation Example
Previous day: High = $105, Low = $100, Close = $103
PP = (105 + 100 + 103) / 3 = $102.67
R1 = (102.67 x 2) - 100 = $105.34
S1 = (102.67 x 2) - 105 = $100.34
These levels become your trading roadmap for the next day.
Types of Pivot Points
1. Standard (Floor Trader) Pivots
The classic formula shown above. Most widely used and reliable.
2. Fibonacci Pivots
Uses Fibonacci ratios (38.2%, 61.8%) to calculate support and resistance levels.
3. Woodie Pivots
Gives more weight to the closing price in calculations.
4. Camarilla Pivots
Creates tighter levels, better for ranging markets.
5. DeMark Pivots
Adjusts calculation based on the relationship between open and close.
How to Trade Pivot Points
Strategy 1: Pivot Point Bounce
Trade bounces off pivot levels as support or resistance.
- Wait for price to approach a pivot level
- Look for rejection candles (pin bars, engulfing patterns)
- Enter in the direction of the bounce
- Place stop loss beyond the pivot level
- Target the next pivot level
Bounce Trade Example
Price opens at $102.50 (below R1 at $103.20).
Price rallies to $103.18 and forms a bearish engulfing candle.
Enter short at $103.00, stop at $103.50, target PP at $101.80.
Risk: $0.50, Reward: $1.20, R:R = 2.4:1
Strategy 2: Pivot Point Breakout
Trade breakouts through pivot levels.
- Identify a key pivot level
- Wait for a decisive break with volume
- Enter on the breakout or retest
- The broken level becomes support/resistance
- Target the next pivot level
Strategy 3: Opening Range with Pivots
Combine pivot points with the opening range.
- Mark the first 15-30 minute range
- Note which pivot levels are nearby
- If price breaks the range toward a pivot, that becomes your target
- Pivots act as profit targets or reversal zones
Using the Central Pivot for Market Bias
The central pivot point (PP) helps determine the daily bias:
- Price above PP: Bullish bias for the day
- Price below PP: Bearish bias for the day
- Price oscillating around PP: Indecision, range-bound day
Pro tip: If price opens above the pivot and stays above it in the first hour, look for long opportunities. The opposite applies for bearish days.
Chart Analysis: Pivot Points in Action
Here is how pivot points appear on a typical intraday chart:
- Horizontal lines at each calculated level
- R1, R2, R3 above the central pivot
- S1, S2, S3 below the central pivot
- Price tends to move from level to level
- Strong trends blow through multiple levels
- Range days oscillate between S1 and R1
Pivot Point Time Frames
Pivot points can be calculated for different periods:
- Daily pivots: Most common for intraday trading
- Weekly pivots: Good for swing traders, stronger levels
- Monthly pivots: Major support/resistance for position traders
Combining Pivots with Other Indicators
Pivots + Volume
- High volume at pivot levels confirms their importance
- Low volume breakouts are more likely to fail
Pivots + Moving Averages
- When pivots align with moving averages, the level is stronger
- Use VWAP as a confirmation tool
Pivots + Candlestick Patterns
- Reversal patterns at pivot levels have higher probability
- Doji, hammer, or engulfing at pivots signal potential turns
Common Pivot Point Mistakes
- Trading every touch: Not all pivot touches lead to tradeable moves
- Ignoring context: Pivots work best in normal market conditions, not during news
- Wrong time zone: Use the correct market session for calculations
- No confirmation: Always wait for price action confirmation at levels
- Overcomplicating: Stick to standard pivots initially
Best Practices for Pivot Trading
- Calculate pivots before the market opens
- Mark the levels on your chart clearly
- Focus on the central pivot, S1/R1, and S2/R2
- S3 and R3 are hit less frequently but indicate extreme moves
- Combine with your existing trading strategy
- Track your win rate at each level to identify your best setups
Track Your Pivot Point Trades
Pro Trader Dashboard helps you analyze which pivot levels work best for your trading style.
Summary
Pivot points are time-tested support and resistance levels calculated from prior price data. They provide objective entry and exit points for intraday traders. Use the central pivot to determine daily bias, trade bounces and breakouts at key levels, and always confirm with price action. Pivot points work best when combined with volume analysis and candlestick patterns.
Learn more: Support and Resistance and VWAP Indicator.