A pivot point is a technical tool used in forex trading to objectively determine potential support and resistance levels and the direction of a prevailing trend. In other words, a pivot point and its support and resistance levels are areas at which the direction of price movement can change. While calculating by hand is possible, it can be rather cumbersome especially in a live trading environment. Therefore, through the use of the Pivot Point Calculator, traders can quickly and easily execute the necessary calculations in an efficient manner.
Calculating Pivot Points through the Five-Point System
Pivot points are calculated using three types of data collected from the previous trading day. These are information are High Price, Low Price and Close Price.
While there are a number of methods for calculating pivot points that can be found online, one of the most common method is the five-point system.
This system uses the previous day’s high, low, and close prices coupled with support and resistance levels, making a total of five points.
The equation for the five- point system would go 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)
Where:
H = High Price
L = Low Price
C = Close Price
S1 = Support 1 – which is (Pivot Point x 2) – Yesterday High
S2 = Support 2 – which is Pivot Point – (Yesterday High – Yesterday Low)
R1 = Resistance 1 – which is (Pivot Point x 2) – Yesterday Low
R2 = Resistance 2 – which is Pivot Point + (Yesterday High – Yesterday Low)
P = Pivot point – which is (Yesterday High + Yesterday Close + Yesterday Low)/3
Keep in mind that, like any other indicator, Pivot Points are objective and do not guarantee 100% accuracy. But it would prove to be beneficial having them on your charts even if the trading system chosen is not based on Pivot Points.
