Imagine what would you do as trader, if you are in a room with 1,000 more traders around you. They are screaming and shouting and you need to trade with them & make money. Would you buy , would you sell , would you hold. This is where Pivot point got birth. The traders in open out cry system wanted some method to the madness of price. They started seeing some patterns and derived mathematical formulas to decide whether to be long, short or scalp.
There are many ways to calculate pivot points and the support and resistance levels. For the purpose of this system, we are going to understand the following method:
(Note : H = Previous Day High, L = Previous Day Low, C = Previous Day Close)
P = (H + L + C) / 3
1st Support and Resistance
- R1 = P + (P − L) = 2×P − L
- S1 = P − (H − P) = 2×P − H
2nd Support and Resistance
- R2 = P + (H − L)
- S2 = P − (H − L)
3rd Support and Resistance
- R3 = H + 2×(P − L) = R1 + (H − L)
- S3 = L − 2×(H − P) = S1 − (H − L)
Lets take example of Live chart on Nifty and Plot the Pivot Points.
Does Pivot point works in today’s environment where there is no open out cry is done and everything is moved electronic. Our research shows it still holds some merit.
Where can I get more information about the same? There are many website & books dedicated to Pivot points but the best that I found was “Secrets of Pivot Boss” by Franklin Ochoa.