Pivot point calculations are used by security traders to attempt to predict support and resistance levels. They are commonly used in the forex and commodity futures markets. Pivot point analysis is a subset of technical analysis, although it is not as popular or well known as other technical methods.
Pivot points are frequently used by foreign exchange traders as a means to calculate resistance and support levels which are, in turn, used as visual cues to execute trades. Pivot point calculations provide traders with objective visual bench marks which some use to predict price changes, although the validity of these levels is still subject to debate.
Calculating points
The popular pivot points include PP, and various "support" and "resistance" points based on PP. There are various ways to calculate PP, including the averaging of the High, Low, and Close (H, L, C) of the previous day's trading, or including the Open trading price in the average. Some popular examples follow:
* R4 = PP + RANGE*3
* R3 = PP + RANGE*2
* R2 = PP + RANGE
* R1 = 2 * PP - L
* PP = (H+L+C) / 3
* S1 = 2 * PP - H
* S2: PP - RANGE
* S3: PP - RANGE*2
* S4: PP - RANGE*3
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