How to Calculate Pivot Points

The pivot point indicator can be added to a chart, and the levels will automatically be calculated. You can also calculate them yourself, bear in mind that pivot points are predominantly used by day traders and are based on the high, low, and close from the prior trading day.

The first thing you‘re expected to learn is how to calculate pivot point levels. Both The pivot point and associated support and resistance levels are calculated by using the last trading session’s open, high, low, and close. But forex is already a 24-hour market, hence most forex traders use the New York closing time of 5:00 pm EST as the last days close.

Pivot Point Calculation

Let's show how The calculation for a pivot point is carried out:

Pivot point (PP) = (High + Low + Close) / 3

Support and resistance levels are then calculated off the pivot point like so:

First level support and resistance:

First resistance (R1) = (2 x PP) – Low

First support (S1) = (2 x PP) – High

Second level of support and resistance:

Second resistance (R2) = PP + (High – Low)

Second support (S2) = PP – (High – Low)

Third level of support and resistance:

Third resistance (R3) = High + 2(PP – Low)

Third support (S3) = Low – 2(High – PP)

Bear in mind that some forex charting software plots halfway levels or mid-point levels. These are basically mini levels between the main pivot point and support and resistance levels.

Even if you don't like dealing with algebraic expression relax, never mind because you dont have to perform these calculations yourself. Most charting software will automatically do this for you. Just ensure to set out your settings so that it uses the accurate closing time and price.

Also Here at WikiFX we have our very own Pivot Point Calculator !, Sounds great right!. The forex pivot point calculator can come in handy, especially if you want to do a little back testing to see how pivot point levels have held up in the past. Don't forget that, one thing important using pivot points is that it has options, so its very easy to test how prices respond to them.

Following after, well teach you the more ways in which you can absorb pivot points into your forex trading strategy.