Pivot Points Explained

Pivot points are a set of price levels calculated from the previous period's high, low, and close, used to anticipate where support and resistance might appear in the current session. The core formula averages those three values to produce the central pivot point, and then adds and subtracts ranges from that pivot to generate additional levels above it, called resistance one and two, and below it, called support one and two.

Because the calculation only needs the prior day's data, pivot points are popular with day traders who want objective levels marked on their chart before the market even opens, rather than levels drawn subjectively by eye. If price opens above the pivot and holds there, that is often read as a bullish bias for the session, while opening and holding below the pivot suggests a bearish bias. The resistance and support levels around the pivot then act as checkpoints where price is likely to pause, reverse, or break through with momentum.

Traders commonly combine pivot points with volume or candlestick confirmation at each level rather than trading them blindly, since a level can be tested and broken just as easily as it can hold. A break through resistance one on strong volume, for instance, is often treated as a signal that price may continue toward resistance two.

Pivot points are most reliable in markets with a clear daily open and close, such as futures, forex sessions, and individual stocks, and lose some effectiveness in markets that trade continuously with no clean session boundary. They also tend to work better in range-bound conditions than in strongly trending markets, where price can blow through multiple levels without pausing.