A pivot point is a technical analysis indicator used to determine potential support and resistance levels in financial markets. It is calculated using the previous trading period’s high, low, and closing prices. Traders use pivot points to identify possible turning points in price movements.
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Pivot points help traders estimate where price direction may change.
Based on the pivot point, additional support and resistance levels are calculated above and below the main pivot level. If the market trades above the pivot point, it may indicate bullish sentiment. If the price moves below it, traders may interpret this as bearish pressure. Pivot points are widely used in short term trading because they provide quick reference levels for potential price reactions during the trading day.
Short example:
Suppose a stock closed yesterday at $100, reached a high of $105, and a low of $95.
Using these values, traders calculate the pivot point and several support and resistance levels.
If the stock opens today and trades above the pivot point, some traders may expect upward momentum. If the price falls below the pivot point, it may signal potential downward pressure.
Disclaimer: Investing brings risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. Therefore, they are for educational purposes only.