Pivot Points: How to Use Them for Support and Resistance Trading
Pivot Points: How to Use Them for Support and Resistance Trading
Pivot Points are a popular technical analysis tool used by day traders, swing traders, and scalpers to identify key support and resistance levels. These levels help traders determine potential reversal points, breakouts, and trend continuations.
In this guide, we’ll explain how Pivot Points work, how to use them effectively, and the best Pivot Point trading strategies.
What Are Pivot Points?
Pivot Points are calculated using the previous trading session’s high, low, and close prices. They create support and resistance levels that traders use to anticipate market movements.
Key Pivot Levels:
- Pivot Point (PP) – The central level that acts as a price equilibrium.
- Support 1 (S1), Support 2 (S2), Support 3 (S3) – Below the pivot, indicating potential buying zones.
- Resistance 1 (R1), Resistance 2 (R2), Resistance 3 (R3) – Above the pivot, indicating potential selling zones.
Pivot Points are widely used in forex, stocks, and futures trading.
How to Calculate Pivot Points
The standard Pivot Point formula is:
[
\text{Pivot Point (PP)} = \frac{\text{High} + \text{Low} + \text{Close}}{3}
]
Then, calculate the support and resistance levels:
- Resistance 1 (R1) = (2 × PP) – Low
- Resistance 2 (R2) = PP + (High – Low)
- Resistance 3 (R3) = High + 2 × (PP – Low)
- Support 1 (S1) = (2 × PP) – High
- Support 2 (S2) = PP – (High – Low)
- Support 3 (S3) = Low – 2 × (High – PP)
Most charting platforms calculate Pivot Points automatically.
How to Use Pivot Points in Trading
Identifying Support and Resistance Levels
- Price above the Pivot Point (PP) → Market is bullish.
- Price below the Pivot Point (PP) → Market is bearish.
- Support levels (S1, S2, S3) act as potential buying zones.
- Resistance levels (R1, R2, R3) act as potential selling zones.
Pivot Point Breakout Strategy
- Buy when price breaks above R1 with strong volume.
- Sell when price breaks below S1 with strong volume.
Pivot Point Reversal Strategy
- Buy at S1 or S2 if price shows bullish rejection (candlestick confirmation).
- Sell at R1 or R2 if price shows bearish rejection.
Best Pivot Point Trading Strategies
Pivot Points + Moving Averages
- Buy when price is above PP and above the 50-day SMA.
- Sell when price is below PP and below the 50-day SMA.
Pivot Points + RSI Strategy
- Look for RSI confirmation before trading Pivot Point reversals.
- Buy when price is near S1 and RSI is below 30 (oversold).
- Sell when price is near R1 and RSI is above 70 (overbought).
Pivot Points + MACD Strategy
- Enter trades when Pivot Points align with MACD crossovers.
- A bullish MACD crossover near S1 is a strong buy signal.
- A bearish MACD crossover near R1 is a strong sell signal.
Best Pivot Point Settings for Different Trading Styles
- Day Trading: Use Daily Pivot Points for short-term setups.
- Swing Trading: Use Weekly Pivot Points to identify broader trends.
- Long-Term Investing: Use Monthly Pivot Points for long-term trend analysis.
Common Pivot Point Mistakes to Avoid
❌ Ignoring price action confirmation – Always confirm Pivot Point setups with candlestick patterns.
❌ Using Pivot Points alone – Combine with volume, RSI, or MACD for stronger signals.
❌ Expecting exact reversals – Price may slightly overshoot or hover near Pivot levels before reversing.
Final Thoughts – Should You Use Pivot Points?
Pivot Points are a powerful tool for identifying support and resistance zones, potential breakouts, and trend reversals. When used with moving averages, RSI, or MACD, they provide high-probability trade setups.
📌 Want to Master Pivot Points?
Try applying Pivot Points on different timeframes and test their effectiveness in trending and ranging markets!
