Learn Pivot Point Trading


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John Carter

Hubert Senters

October 2008

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Learn Pivot Point Trading

Learn Pivot Pont Trading

So what exactly are the pivots? What is there to Learn Pivot Point Trading? There is no big mystery or secret to them, and many readers will have heard about them and have used them in their own trading on a regular basis. For the uninitiated, I will spend a little time explaining how I set them up and why they work, and then we will jump into the setups that I use with them.

How to Learn Pivot Point Trading

Pivots are readily available and have been around for a long time. These are support and resistance levels calculated by floor traders using a simple mathematical formula. These levels became widely known and have moved off floor. Today many traders are aware of them and try to use them, but in my experience they are using them incorrectly. To add to the confusion, there are different formula versions and different time frames that are used when calculating pivots. So, to get started, let's learn Pivot Point Trading and look at what I use, which is one of the standard pivot formulas: R3: R1 + (High - Low)
R2: Pivot + (High - Low)
R1: 2x Pivot -- Low
PIVOT: High + Low + Close/3
S1: 2x Pivot -- High
S2: Pivot - (High - Low)
S3: S1 - (High - Low)
Once a trader has this formula, then the key data that is needed is the high, low and close of the previous session. For my own trading, I like to utilize 24 hours worth of data to capture the highs and lows. However, it is absolutely imperative to use the settlement price for the close, as this is the only closing price that matters. Oftentimes a 24 hour setting on a chart means "midnight to midnight" and that will destroy the validity of the data.

What Happens After You Learn Pivot Point Trading?

Once I get this high/low/close, I plug these into an excel spreadsheet with the formulas listed above. This information generates 7 important levels for the next trading day: a central pivot, then 3 levels above (R1, R2, and R3) and 3 levels below (S1, S2 and S3). The central pivot has the most weight of the 7 levels. In addition to these daily levels, I also utilize the midpoints between these levels. Finally, I like to know where the weekly and monthly levels are located. These are calculated by taking the high/low/close of the previous weekly or monthly bar. While the daily pivots change each day, the weekly pivots only change once a week, and the monthly pivots once per month.

What is important to Learn in Pivot Pont Trading?

It is important to note that it is extremely rare when a stock index hits its daily R3 or S3 levels. This is important to know because if a market rallies to R2 or a sells off to S2, that usually ends up being the dead high or the dead low of the day. This knowledge will help temper a trader's emotions and keep them on track to follow this system.

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Online Trading Articles

· Excel Pivot Table
· Pivot Point Calculator
· Pivot Chart
· What is Pivot Point?
· How To Calculate Pivot Point?
· Pivot Point Trading
· Pivot Point Calculator for emini Futures

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