Pivot Points

Pivot Points are a set of mathematical support and resistance levels calculated from the prior trading session's high, low, and close prices. The central Pivot Point (PP) is the average of these three values: (High + Low + Close) / 3. From this central pivot, additional support (S1, S2, S3) and resistance (R1, R2, R3) levels are calculated using standard formulas. Developed by floor traders in the pre-electronic era, pivot points remain one of the most widely used indicators in day trading because they provide objective, pre-determined levels before the market opens. The theory is that the pivot point represents the level of equilibrium between buyers and sellers — price above the pivot suggests bullish sentiment, below it bearish. S1/R1 are the first targets and most commonly tested levels, while S2/R2 and S3/R3 represent progressively stronger support/resistance. Variations include Woodie's Pivots (weighting the close more heavily), Camarilla Pivots (tighter levels for mean-reversion trading), and Fibonacci Pivots (incorporating Fibonacci ratios). Pivot points are self-fulfilling to some extent — because so many traders watch the same levels, they tend to produce reactions at those prices.