Know Pivot Points (Pivot Level)
Pivot levels have been used in technical analysis for some time and were originally used by traders, often called floor traders, who traded for their own accounts on the floor of stock or commodity exchanges. Pivot level can be an easy way for traders to get an idea where the market is heading all day trading. The only way to do some simple calculations about the closing price (close), highest (high) and low (low) from the previous day. And, there is also a calculation involving today’s opening price. The Pivot level can be used as a predictive indicator to identify the main levels of support and resistance, called pivot levels, and can be used to forecast short-term directions that the market will take during the day.
Currently, with computerized technology, pivot level calculators can be shown rapidly up to seven pivot levels consisting of; three resistance levels named R1 (first resistance level), R2 (second resistance level) and R3 (third resistance level); main pivot level (PP); and three support levels named S1 (first support level), S2 (second support level) and S3 (third support level). Level S1, PP and R1 are considered three main pivot levels. Pivot level can also be used to quickly determine the direction of the market with a market that is considered bullish when opened above the PP, and bearish when opened under the PP.
To get or calculate pivot level is quite easy. All you need is a high, low, and close price in the previous period. However, there are a number of different formulas or methods that can be used to calculate pivot levels.
The most widely used method is called the classic floor trader method, which uses the average high, low and close prices in the previous period. Other calculation methods also take into account the open price for the previous period or the open price for the current period (current).
Three common methods for calculating pivot levels are:
Classic method of floor trader
The Woodie method, which utilizes current open prices
While less common methods are used but there include the Fibonacci Pivot method and DeMark method.
Well, you can choose the appropriate pivot level calculation method and convenient for your trading system. Or if you do not know each of the calculations, please follow our article on this website.