Pivot points are mathematically derived horizontal levels calculated from the previous period's high, low, and close that serve as potential support and resistance for the current period. The central pivot point acts as the primary directional bias level, while support and resistance levels above and below provide profit targets and stop placement zones. Pivot points are widely used by institutional and floor traders, creating self-fulfilling price reactions.
The standard pivot is calculated as the average of the prior period's high, low, and close. Multiple support levels (S-one, S-two, S-three) are derived below the pivot. Multiple resistance levels (R-one, R-two, R-three) are derived above the pivot. Variants include Fibonacci pivots, Camarilla pivots, and Woodie pivots. Daily pivots are most popular, but weekly and monthly pivots carry more significance. Price above the central pivot suggests bullish bias; below suggests bearish bias.
Enter long on a bounce from a pivot support level with candle confirmation. Enter short on rejection at a pivot resistance level with volume confirmation. Use the central pivot as a trend filter — long only above, short only below. Combine pivot levels with other confluence such as moving averages or Fibonacci levels.
Target the next pivot level in the direction of the trade. Stop beyond the pivot level that provided the entry signal. Exit if price fails to bounce from a pivot and closes through it with conviction. Use R-two or S-two as extended targets when momentum is strong.
5M, 15M, 1H, 4H
Pivot points are most effective in range-bound markets where price rotates between levels. During strong trends, pivot levels can be blown through with little reaction. Weekly and monthly pivots tend to produce stronger reactions than daily pivots because they reflect more significant price action.
The Relative Strength Index (RSI) and Stochastic Oscillator are bounded momentum indicators that identify overbought and oversold conditions. RSI (default: 14) ranges from 0-100; readings above 70 suggest overbought, below 30 oversold. Stochastic (default: 14, 3, 3) measures where the close falls within the recent high-low range.
Fibonacci retracements identify potential support and resistance levels by measuring the percentage pullback of a prior price swing using key Fibonacci ratios: 23.6%, 38.2%, 50%, 61.8%, and 78.6%. These levels often coincide with where pullbacks within trends tend to find support or resistance, making them essential for entry timing.
Gaps occur when price opens significantly above or below the prior close, leaving an unfilled space on the chart. Gap trading strategies exploit the tendency for gaps to either fill (price returning to close the gap) or continue (price extending in the gap direction). Understanding gap types — common, breakaway, runaway, and exhaustion — helps traders determine whether to fade the gap or trade its continuation.
Support and resistance (S/R) levels are price zones where buying or selling pressure has historically prevented the price from continuing in its current direction. Support is a floor where buying emerges; resistance is a ceiling where selling appears. S/R levels are the foundation of technical analysis and provide the framework for every trade setup.