What Are Pivot Points?
In short
Pivot points are reference price levels calculated from the previous period's high, low and close, with support and resistance levels derived around a central pivot.
Pivot points are computed from three values of the previous trading period: the high, the low and the close. They have long been used as quick reference levels for the next session, and charting software later adopted them for daily, weekly and monthly periods. The central pivot is the starting point; levels above it are labelled resistance and levels below it support.
Several methods exist. The classic method sets the pivot at the average of the high, low and close and derives the first support and resistance by reflecting the pivot around the previous low and high. The Fibonacci method places levels at fixed fractions of the previous range above and below the pivot. The Camarilla method builds levels around the previous close from small fractions of the range, and Woodie's method gives the close double weight when it calculates the pivot.
Pivot levels are arithmetic and not observations of other participants' orders. They are popular partly because many people calculate the same levels, so their usefulness is a matter of convention and not of mathematics, and different methods give different levels from the same inputs. For a daily grid the previous day's values are used and for a weekly grid the previous week's, so the levels stay fixed through the period and are recalculated when the next one starts. They describe a reference grid for the next period; they are not a forecast of where the price will go.
Formula
Pivot (P) = (high + low + close) / 3
R1 = 2 * P - low S1 = 2 * P - high
R2 = P + (high - low) S2 = P - (high - low)
(classic method; the other methods use other multipliers)The formula is shown as code; N stands for the number of bars or periods.
How Lzzo.com shows it
The pivot point calculator on Lzzo.com computes Classic, Fibonacci, Camarilla and Woodie levels from a high, low and close that the visitor enters. Its example values are labelled as examples and are not current quotes, and the calculator does not look up prices on its own. The support and resistance guide explains how such levels are read.
Related guides
Sources
- John L. Person, Candlestick and Pivot Point Trading Triggers (Wiley, 2007)
- John J. Murphy, Technical Analysis of the Financial Markets (New York Institute of Finance, 1999)
Primary and official sources, named as plain text.