Pivot Level

Pivot Level

Pivot point is the point of rotation. It is the level where the market price is potentially rotated back to where it came from the market price or to continue making significant distance from the pivot point.

Pivot point calculated using the previous period's high, low and closing prices are taken from the daily chart. Most traders use pivot level with support and resistance levels to predict the daily market price movement.

Every day the market you are following an open, high, low and close for the day (some markets like forex are 24 hours but generally use the end of working hours in New York as the market open and close). This information basically contains all the information you need to use pivot points.

In order to calculate the pivot level, we need 3 prices, which are:

H = previous period of high price

L = previous period's low price

C = period of the previous closing price

Then calculate the pivot level by using this equation:
Pivot point (PP) = (+ + High Low Close) / 3

Support and resistance levels are then calculated out of this pivot point by using the following formula:

Resistance:

R1 = resistance at level 1 = (2 * PP)-L

R2 = resistance level 2 = (PP-S1) + R1

R3 = resistance level 3 = (PP-S2) + R2

Support:

S1 = Support Level 1 = (2 * PP)-H

S2 = Support Level 2 = PP - (R1 - S1)

S3 = Level 3 support = PP - (R2-S2)