How to calculate 'Classic Pivot Points' ?

Have you ever wondered how traders pinpoint key levels in the market? Today, we’re diving into the world of pivot points—a fundamental tool in technical analysis that helps traders determine support and resistance levels.

Breaking Down the Formula

Let’s keep it straightforward. The classic pivot point formula is your guide to identifying potential market turning points. Here’s how it works:

• Calculate the Range:

  The range is simply the difference between the high and low prices of the previous trading session.

  RANGE = HIGH − LOW 
  

• Determine the Pivot Point (PP):

  The pivot point is the average of the high, low, and close prices.

  PP= ( HIGH + LOW + CLOSE​) / 3
  

• Identify Support Levels (S1 to S4):

  Support levels are calculated as follows:

S1: (2×PP) − HIGH  
S2: PP − RANGE 
S3: S2 − RANGE 
S4: S3 − RANGE

• Identify Resistance Levels (R1 to R4):

  Resistance levels are determined by:

R1: (2×PP) − LOW 
R2: PP + RANGE 
R3: R2 + RANGE 
R4: R3 + RANGE

Why Pivot Points Matter

• Simplicity: Easy to calculate and understand.
• Versatility: Applicable across various timeframes.
• Predictability: Offers clear potential support and resistance levels.