Pivot Point Calculator

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What is Pivot Point Calculator and how to use it in trading?

The pivot points are calculated support and resistance levels. The calculation is based on the previous day open, high, low and close (OHLC) data. Hence, Pivots Points are important levels trades use to determine the direction of movement and support and resistance levels. Pivot Points are leading indicators and predictive in nature. If the market moves above the pivot point, it is usually considered as a bullish move, whereas trading below the pivot point is seen as bearish. Pivot points are commonly used in the intra-day trading of stocks, futures and commodities.

There are many different types of Pivot Point calculations. Here we have explained only Classic, Woodie’s, Caramilla and Demark’s pivot points. There are seven levels in pivot calculation. PP is the pivot point. S1, S2, S3 are three support levels and R1, R2 and R3 are resistance levels. Earlier Pivot Points were used by floor traders to assist them in their trading throughout the day. At the beginning of the day, floor traders looked at the previous day’s high, low and close to calculate a Pivot Point for the current trading day.

Pivot Point calculation for smaller timeframe charts like 1 minute, 5 minute and 15-minute use previous day’s high, low and close. That means, pivot level on an intraday chart is based on yesterday’s high, low and close price and those levels are valid throughout the day. Similarly Pivot Points for 30 minutes, hourly, 2 hourly charts use previous week’s high, low, and close. A week means Monday to Friday for Indian Market. Once the week starts, the Pivot levels remain fixed for the whole week.

Similarly, Pivot Points for daily charts use the previous month’s data. For example, February months pivot point is calculated on January month’s high, low and close data. They also remain the same until the month ends. In the same way, the pivot point for a weekly chart is calculated using the previous year’s data.

Classic Pivot Points
Classic Pivot Points begin with a base Pivot Point, which is a simple average of the high, low and close of yesterday. The Pivot line is shown as a thick line between the support and resistance pivots. The first level of support and resistance (S1 & R1) is obtained by upper and the lower halves of the prior trading range.
PP = (h + l + c) / 3;
R2 = pp +(r1 – s1);
S2 = pp – (r1 – s1);
R1 = 2 * pp – l;
S1 = 2 * pp – h;
R3 = pp + 2 * (h – l);
S3 = pp – 2 * (h – l);

Woodie’s Pivot Points
Woodie’s pivot points are very similar to classic pivot points. But the only difference is it gives more importance to the opening price of the current day.
PP = (h + l + o + o) / 4;
R2 = pp + (h – l);
S2 = pp – (h – l);
R1 = 2 * pp – l;
S1 = 2 * pp – h;
R3 = h + 2 * (pp – l);
S3 = l – 2 * (h – pp);

Camarilla Pivot Points
Camarilla pivot is the improved form of the Classic pivot point. This formula uses the range of the given time frame, daily, weekly, monthly etc. Camarilla equations take previous day’s high, low and close as input and generate levels of intraday support and resistance based on pivot points.
PP = (h + l + c) / 3;
R2 = c + (h – l) * 1.1d / 6;
S2 = c – (h – l) * 1.1d / 6;
R1 = c + (h – l) * 1.1d / 12;
S1 = c – (h – l) * 1.1d / 12;
R3 = c + (h – l) * 1.1d / 4;
S3 = c – (h – l) * 1.1d / 4;

Demark Pivot Points
Demark Pivot Points are different and use different formulas to calculate support and resistance. These Pivot Points are based on conditions.
If C < O, then X = H + (2 x L) + C If C > O, then X = (2 x H) + L + C
If C = O, then X = H + L + (2 x C)
PP = X/4
S1 = X/2 – H
R1 = X/2 – L

How to Plot Pivot Points?

Using the above calculator and previous day data you can generate different types pivot levels and then plot these levels on your chart. If you are using advanced trading platforms like Amibroker or MT4, you can plot these levels directly on the chart using pre-defined formula.

How to trade using pivot point?

Pivot levels can be used just like any support and resistance levels. The key is to watch price movement near these levels. If price decline to support, traders look for a successful test and bounce back from support level. It helps to look for a bullish chart pattern or indicator signal to confirm an up move from the support level. If prices advance to resistance and stall, traders look for failure at resistance and decline. Here traders look for indicators like Stochastic or RSI to confirm the down move.

Pivot point (PP) is the middle line of the group. If the market moves above the Pivot Point, then traders consider it positive. It suggests strength with a target to the R1. A break above R1 shows even more strength and the next target becomes R2. The opposite is true in the downside. A move below the PP suggests weakness with a target to the S1. A break below the first support shows even more weakness with a target to the second support (S2).

The second support/resistance levels can also be used to determine overbought and oversold zone. If the market consolidates above the second resistance level, it indicates strength. But it would also indicate an overbought condition that could give way to a pullback. Similarly, a move below the S2 level would show weakness, but would also suggest a short-term oversold condition that could give way to a bounce.

Sometimes the market opens above or below the PP level. Support and resistance play an important role after the crossover. Pivot Points can be applied on various timeframe charts. It is important to confirm Pivot Point signals before trading. It is better to use candlestick analysis along with technical indicators to establish a reversal at resistance levels. Oversold RSI could confirm oversold conditions at second support. An upturn in Stochastic could be used to verify a successful support test. You can use RSI or Stochastic but not both because both are the same kind of indicators. We will discuss that later.

Pivot points are based on calculations to find support and resistance levels. However, the accuracy varies from instrument to instrument. They perform better on heavily traded stocks. These levels are not based on actual supply and demand in the stock price. To get the real support and resistance levels created in the movement of the price you need to manually draw lines on the chart through peaks and troughs in the chart. Identifying support and resistance levels is the first step in identifying possible breakout trading opportunities.