Calculating pivot points is an essential part of understanding of their usage, and even though most of the trading platforms already have a pivot points calculator built in, so the numbers are crunched up by themselves It would be nice for us to understand what pivot points are and how to calculate them before going any further.
In order to count pivot points as well as support and resistance levels you need to know last trading session’s open, high, low, and close. For this most traders use the numbers they can get out of the previous close of NY stock exchange as it the biggest and one of the most important stocks exchanges in the world.
In order to count all of the lines in the picture you need these formulas:
- Pivot point (PP) = (High + Low + Close) / 3
- First resistance (R1) = (2 x PP) – Low
- First support (S1) = (2 x PP) – High
- Second resistance (R2) = PP + (High – Low)
- Second support (S2) = PP – (High – Low)
- Third resistance (R3) = High + 2(PP – Low)
- Third support (S3) = Low – 2(High – PP)
Those who do not like to count and use formulas do not have to be worried, as I already said platform usually count all of the numbers for you and you just need to understand how to implement all the calculation for your advantage. But that is a discussion for another time.
