We often hear market analysts or experienced traders talking about an equity price nearing a certain support or resistance level, each of which is important because it represents a point at which a major price movement is expected to occur. But how do these analysts and professional traders come up with these so-called levels? One of the most common methods is using pivot points, and here we take a look at how to calculate and interpret these technical tools.
How to Calculate Pivot Points There are several different methods for calculating pivot points, the most common of which is the five-point system. This system uses the previous day’s high, low and close, along with two support levels and two resistance levels (totalling five price points) to derive a pivot point. The equations are as follows:
R2 = P + (H – L) = P + (R1 – S1)
R1 = (P x 2) – L
P = (H + L + C) / 3
S1 = (P x 2) – H
S2 = P – (H – L) = P – (R1 – S1)
Here, “S” represents the support...
Last edited by a moderator: