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Pivot Points are automatically plotted on your chart so you won’t need to waste any time calculating them. However, if you really want to have an intimate relationship with them, here is the pivot point calculator:

Pivot Point (P) = (High + Low + Close)/3

The main pivot point (PP) is the central pivot based on which all other pivot levels are calculated. The math behind the central Pivot Points is quite simple. We add yesterday’s high, low and close and then divide that by 3, which is a simple average of the high, low and close.

And this is the math behind the support and resistance pivots:

Support 1 (S1) = (P x 2) – High

Support 2 (S2) = P – (High – Low)

Resistance 1 (R1) = (P x 2) – Low

Resistance 2 (R2) = P + (High – Low)

The third support and resistance levels are calculated as:

Resistance 3 (R3) = H + 2 * (PP – L)

Support 3 (S3) = L – 2 * (H – PP)

The central PP is just one of the main support/resistance levels. The best pivot point indicator will also plot 10 more distinctive layers of support and resistance levels.

Usually, if we are trading above the central pivot point, it is a signal of a bullish trend. If the price is trading below the central pivot point, it is considered a bearish signal.

Most modern trading software, or platforms, have the pivot points indicator in their library. So, you don’t have to calculate these levels manually on your own.

Next…

Let’s learn how to use pivot points to predict prices in the forex market.