A Pivot Point is a technical analysis tool that is used to identify the direction of a market trend and potential support and resistance levels. It is based on the average of the high, low, and closing prices from the previous trading period, and it is often used to predict the direction of price movement in the current or upcoming trading period.There are several different types of pivot points, including the standard pivot point, the Fibonacci pivot point, and the Woodie pivot point. Each type uses a slightly different formula to calculate the pivot point and the support and resistance levels.The pivot point is used to generate support and resistance levels, which are important levels for traders to watch in order to determine potential buy and sell signals. There are several formulas used to calculate pivot points, including the standard pivot point formula and the Fibonacci pivot point formula.The standard pivot point formula is as follows:Pivot Point (PP) = (High + Low + Close) / 3Support 1 (S1) = (2 x PP) - HighSupport 2 (S2) = PP - (High - Low)Resistance 1 (R1) = (2 x PP) - LowResistance 2 (R2) = PP + (High - Low)To calculate the pivot point, simply take the average of the high, low, and closing prices of a security and use that as the base value. From there, use the formula to calculate the support and resistance levels. Keep in mind that pivot points are dynamic and may change as new market data becomes available.In general, the pivot point is considered to be a key level of support or resistance, and a break above or below the pivot point can signal a change in the direction of the trend. If the price of a security breaks above the pivot point, it may be considered to be bullish and may signal the start of an uptrend. Conversely, if the price breaks below the pivot point, it may be considered to be bearish and may signal the start of a downtrend.Pivot points are often used in conjunction with other technical analysis tools, such as trend lines and moving averages, to help traders make informed decisions about their trades. It is important to note that pivot points are not a guarantee of future price movement, and further confirmation is needed before taking any action based on pivot points.
