In the previous lesson, we explained what a pivot point is. In this lesson, we will look at how to calculate a pivot point.
The pivot point and the corresponding support and resistance levels are calculated using the opening price, the ceiling price, the floor price and the closing price of the last trading session.
Because Forex is a 24-hour market, most Forex traders use the closing time of the New York trading session at 5:00 pm EST time as the basis for yesterday’s closing price.
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How to calculate Pivot Point
To calculate, just put the ceiling price, floor price and the final price of the previous day in the following formula.
Pivot point (PP) = (ceiling + floor + closure) / 3
Then the level of support and resistance to the pivot point is calculated as follows:
First resistance (R1) = (2 x PP) – floor
First support (S1) = (2 x PP) – ceiling
Second level of support and resistance:
Second resistance (R2) = PP + (ceiling – floor)
Second support (S2) = PP – (ceiling – floor)
Third support and resistance level:
Third resistance (R3) = ceiling + 2 (PP – floor)
Third support (S3) = floor – 2 (ceiling – PP)
Keep in mind that some technical software draws the middle or middle levels of these points.
These are basically the small (mini) levels between the main pivot point and the support and resistance levels.
How to calculate pivot point?
If you hated algebra lessons in math classes, do not be afraid anymore because you do not have to do these calculations yourself.
Most technical software will do this for you automatically. Just make sure you configure your settings to use the right closing time and price.
We also have a pivot point calculator on our BabyPips site. To use it click here.
The Forex Pivot Point Calculator can work well, especially if you want to do a little verification to see how successful pivot levels have worked in the past.
Remember, one of the advantages of using PointPoint is that it is objective and experimental, so it is very easy to test how the price reacts to them. We will soon post the Pivot Point indicator for MetaTrader 4 and MetaTrader 5 on the website and link to this page.
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