Pivot Points: Meaning, Significance, Uses & Calculation
5paisa Research Team
Last Updated: 13 Nov, 2024 04:57 PM IST

Content
- What Is Pivot Point?
- Calculating Pivot Point: Quick Formula for Pivot Points
- How to Use Pivot Points for Intraday Trading?
- How Significant Are Pivot Points?
- Why Do Day Traders Prefer Pivot Points?
- Other Uses of Pivot Points
- Pivot Points vs. Fibonacci Retracements
- Limitations of Pivot Points
- Conclusion
If you’re trading, you probably wish for some hints on where prices might head next, right? Pivot points are basically a shortcut for that—a quick way to get a feel for the market’s mood based on yesterday’s numbers.
Think of pivot points as markers. They’re based on the high, low, and close prices from the previous day, and they give us a central “pivot” level that helps traders predict potential price movements. Now, if prices stay above this level, it could mean we’re in for an upward ride (bullish), but if they drop below, it might suggest the opposite (bearish).
But why do traders love them? Well, they’re straightforward, they’re quick to calculate, and they give you a way to map out possible high and low points for the day. This isn’t a magic tool—no promises of instant success here—but it’s a handy guide that many rely on to make smarter trading decisions.
So, whether you’re a beginner, intermediate trader or a pro, pivot points are worth understanding. In this article we will explore how they work, how to calculate them, and why they might just give you the edge you’ve been looking for in trading.
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Frequently Asked Questions
Pivot points are technical indicators that help traders identify potential resistance and support levels. By calculating pivot points, traders can assess price movements. If the market trades above the pivot point, it is measured as bullish and if the market trades below the pivot point, it is considered as bearish.
Pivot points are simple technical indicators that are used by traders to derive potential support and resistance levels along with trends in a financial market. Pivot Points are derived from a simple calculation using the previous day’s low, high and closing price. The formula of Pivot Point is P = Previous day’s High + Previous Day’s Low + Previous Day’s Close)/3
A pivot point breakout is a strategy that anticipates market price to break through a pivot point and continue moving in the same direction. Bullish breakout occurs when the price increases beyond the pivot point and traders go long to capitalize on the uptrend. On the other hand, bearish breakout occurs when the price breaks the support point and traders go short – anticipating a downtrend.
Yes, pivot points are important both for day traders and long-term investors because they can identify support and resistance levels and at the same time predict trend reversals. However, pivot points are used best when they are combined with other technical analysis indicators.