Pivot points are support and resistance levels calculated arithmetically from the previous period's high, low and close. The central pivot is the average of those three prices, and the surrounding levels are derived from it by fixed formulas. They are recalculated at each new period and require no interpretation of the chart.
The formula
The standard, or floor-trader, calculation uses three inputs from the completed period — high (H), low (L) and close (C):
- P = (H + L + C) / 3
- R1 = 2P − L
- S1 = 2P − H
- R2 = P + (H − L)
- S2 = P − (H − L)
Take a EUR/USD session that closed with H = 1.0925, L = 1.0845 and C = 1.0891. The central pivot is (1.0925 + 1.0845 + 1.0891) / 3 = 1.0887. From there: R1 = 2 × 1.0887 − 1.0845 = 1.0929, and S1 = 2 × 1.0887 − 1.0925 = 1.0849. The period range is 80 pips, so R2 = 1.0887 + 0.0080 = 1.0967 and S2 = 1.0887 − 0.0080 = 1.0807.
Every figure comes from one arithmetic pass over three numbers. Two people using the same session data and the same formula produce identical levels, which is why the calculation is often applied to daily data before the European session opens.
Note what the numbers do not contain. Price traded through R1 in the following session on many past occasions and reversed at it on many others; the formula has no memory of either outcome. A level produced this way is a reference on the chart, not an entry point, a target or an indication of what price will do next. The distance between two levels can be converted into a cash amount for your position size with the pip calculator.
A calculated level is not a drawn level
A level drawn by hand marks a price where the market visibly turned before — it exists because something happened there. A pivot level exists because of division. It may coincide with a historic turning point, or it may fall in the middle of an untouched range.
The two are read differently for that reason: the drawn variety carries evidence and the calculated variety carries none. The concept of support and resistance itself, and how prior price action is marked up, is covered in the lesson on support and resistance; this entry deals only with the arithmetic.
Fibonacci and Camarilla variants
Platforms usually offer alternative calculations alongside the standard set. The Fibonacci variant keeps the same central pivot but places levels at 38.2%, 61.8% and 100% of the previous range above and below it. The Camarilla variant also starts from the previous close and derives eight levels using fixed multipliers of the range, which places its inner levels much closer to the close than the standard set does. Woodie's variant weights the close twice in the central pivot. The choice changes the numbers on the chart; it does not change what those numbers are — outputs of a formula applied to one completed period.
