What do Pivot Points measure?
The short answer
Pivot Points use the prior period’s high, low, and close to estimate support and resistance levels for the current period. StockCharts ChartSchool
The “prior period” changes depending on the chart. It could be the previous day, the previous week, the previous month, or the previous year, depending on the timeframe of the chart being viewed. Every reading in this article comes from past market data; none of it is a forecast.
How are Pivot Points calculated?
The short answer
Standard Pivot Points begin with a base pivot point calculated as a simple average of the prior period’s high, low, and close. StockCharts ChartSchool
The base pivot is found by adding the prior period’s high, low, and close together, then dividing that sum by three. From that single number, additional support and resistance lines are added above and below using the prior period’s range.
Which prior period feeds the calculation depends on the chart’s timeframe. Pivot Points on 1-, 5-, 10-, and 15-minute charts are calculated from the prior day’s high, low, and close, and once set they remain fixed for that entire trading day. StockCharts ChartSchool
Pivot Points on 30-, 60-, and 120-minute charts are calculated from the prior calendar week’s high, low, and close and remain fixed for that entire week. StockCharts ChartSchool
Pivot Points on daily charts are calculated from the prior month’s high, low, and close and remain fixed for that entire month. StockCharts ChartSchool
Pivot Points on weekly and monthly charts are calculated from the prior year’s data. StockCharts ChartSchool
Fibonacci Pivot Points start from the same base pivot point as Standard Pivot Points, then add or subtract Fibonacci multiples of the prior period’s high-low range to form resistance and support levels. StockCharts ChartSchool Fibonacci Pivot Points use ratios of 0.382 for the first support and resistance levels, 0.618 for the second, and 1.0 for the third. StockCharts ChartSchool
Demark Pivot Points use a different base and different formulas for support and resistance than Standard Pivot Points, and the formula applied is conditional on the relationship between the period’s close and open. StockCharts ChartSchool Demark Pivot Points calculate a single resistance level and a single support level, rather than the multiple support and resistance levels produced by other pivot point methods. StockCharts ChartSchool
Where did Pivot Points come from?
The short answer
Our sources do not document this.
What does published research say?
The short answer
The sources cited here include no published test of the Pivot Points.
Our sources include reviews of technical trading rules in general.
A 2007 review by Cheol-Ho Park and Scott Irwin looked at 95 modern studies of technical trading rules in general: 56 reported positive results, 20 negative results, and 19 mixed results. Despite that positive evidence, the review found that most of the studies had problems in their testing, such as data snooping and difficulty estimating risk and transaction costs, and said future research must fix them before the evidence can be called conclusive. RePEc IDEAS
A 2011 St. Louis Fed working paper by Christopher Neely and Paul Weller reviewed research on technical trading rules in general in currency markets. It reported that simple rules on dollar exchange rates gave positive returns, after accounting for risk, for 15 years in the 1970s and 1980s before those returns disappeared, and that more complex, less studied rules have since produced more modest returns. Fed in Print (Federal Reserve)
How are Pivot Points commonly used?
The short answer
A Pivot Points reading shows where the current price sits relative to the base pivot and the surrounding support and resistance levels drawn from the prior period’s range.
The base pivot and the support and resistance lines around it are plotted as horizontal lines on the chart. Some traders look at where price sits among those lines as one piece of context when reviewing a session, alongside other chart information.
Example: a stock’s base pivot point sits at a price derived from the prior day’s high, low, and close. If the current price is trading above that base pivot, the chart shows price in the upper portion of the prior day’s range. If price is trading beyond the first resistance level, the chart shows price extending past a line calculated from that same data. This example is illustrative only and does not indicate typical results.
What are the limits and common misreads?
The short answer
Pivot Points are calculated from past market data; they are not a forecast.
Pivot Points are fixed for their period once calculated, so they do not adjust as new information arrives within that session. A level that lines up with price early in the period may sit far from price later simply because time has passed.
A common misread is treating every support or resistance line as equally weighted. The calculation produces a first, second, and third level spaced out from the base pivot, not a single ranked list of importance.
On some charts, the second or third support and resistance levels are not visible because they fall outside the price scale shown, meaning the level is off the chart rather than absent from the calculation. StockCharts ChartSchool
How are Pivot Points read alongside other context?
The short answer
Pivot Points can be viewed next to other chart information as one more layer of context about where price has traded, not as a way to remove uncertainty.
Some traders place Pivot Points alongside support and resistance areas identified from swing highs and lows, or alongside a volume profile, to see whether multiple reference points sit in the same price area. Viewing several references together adds context about the chart, nothing more.
No indicator or combination of indicators makes an outcome certain. Trading involves the risk of loss.
Take it with you
- The base pivot point is a simple average of the prior period’s high, low, and close. StockCharts ChartSchool
- Which prior period feeds the calculation depends on the chart’s timeframe, from the prior day up to the prior year. StockCharts ChartSchool
- Standard and Fibonacci Pivot Points start from the same base pivot point. StockCharts ChartSchool
- Demark Pivot Points use a different base and calculate only one resistance level and one support level. StockCharts ChartSchool StockCharts ChartSchool
- A second or third support or resistance level can be off the chart rather than missing from the calculation. StockCharts ChartSchool
- Pivot Points are calculated from past market data; they are not a forecast.
Disclosure
This article is educational content from One Purpose Trading. It is not financial, investment, tax, or legal advice, and nothing here is a recommendation to buy or sell any security or instrument.
Trading involves substantial risk of loss and is not suitable for everyone. You can lose more than your initial investment. Any examples, figures, or scenarios are illustrative only. Results are not typical, and past performance does not guarantee future results.
You are responsible for your own decisions. Trade only with capital you can afford to lose, and consider consulting a licensed professional about your individual situation.