The daily pivot point is one of my favorite trading tools.
It identifies trends and reversals in equities, commodities, and forex markets.
And if you’re a day trader, you can use the daily pivot point to anticipate potential entry and exit levels, plus reference points for profit targets and stop-loss orders.
As Investopedia puts it, daily pivot points are calculated to determine levels in which market sentiment could change from bullish to bearish and vice-versa.
It involves calculating the average of the intraday high and low…
And the closing price from the previous trading day.
For example, if it is Tuesday morning, you can use the high, low, and close from Monday to create the pivot point levels for the Tuesday trading day.
Here’s what it looks like in an equation format (from Investopedia):
- P = High + Low + Close 3
- R1= (P×2) − Low
- R2 = P+ (High−Low)
- S1 = (P×2) − High
- S2 = P − (High − Low)
Where:
- P = Pivot point
- R1 = Resistance 1
- R2 = Resistance 2
- S1 = Support 1
- S2 = Support 2
*High indicates the highest price from the prior trading day,
*Low indicates the lowest price from the prior trading day, and…
*Close indicates the closing price from the prior trading day.
Make sense?
Trading above the pivot point indicates bullish sentiment (time to buy).
While trading below the pivot point indicates bearish sentiment (time to sell).
The daily pivot isn’t necessarily a perfect tool with 100% accuracy every time.
However, it is more effective when used alongside other technical indicators like
moving averages or Fibonacci retracements as part of your trading plan.
The historical effectiveness is precisely why I’ve made it a staple tool in my trading strategy over the years and I encourage you to do the same.
For more insight, see how I use daily pivots for double-digit gains.
Wishing you a blessed day.