Trading with Pivot Points
Pivot Points are a highly objective technical analysis tool used to determine general market trends over different timeframes. Unlike moving averages which are lagging indicators, pivot points are predictive — they use yesterday's price action to predict today's turning points.
The Central Pivot Point (PP) is the most important level. If the price opens above the PP, it signals a bullish bias for the day, and traders will look to use the PP and S1 as support to buy. If the price opens below the PP, it signals a bearish bias, and traders look to sell rallies at the PP and R1.
Pivot Point Formulas
Our calculator uses the"Classic" or"Standard" Floor Trader's pivot point formula. This is the most widely respected variation used by institutional algorithms. The formulas are:
The Importance of the New York Close
Forex is a 24-hour market, so what defines a"day"? To calculate accurate daily pivot points, you must know when the previous day officially ended.
The global banking standard is the New York Close (5:00 PM EST). Our calculator automatically fetches the exact High, Low, and Close from the previous New York trading session. If you calculate pivot points using a midnight close in your local time zone (like London or Tokyo), your levels will be skewed and you will be looking at lines that the big banks are ignoring.
Breakout vs. Bounce Strategies
- Bounce (Mean Reversion): When the market is ranging, traders expect the price to bounce between R1 and S1. They will place buy orders at S1 with a stop loss just below it, and take profits at the PP.
- Breakout (Trend Following): When heavy news hits, the price may blow past R1. Traders then switch to a breakout strategy, waiting for the price to retest R1 (turning it into new support) before buying with a target of R2 or R3.