Scribd
Upload
83 views

Using Pivot Points For Predictions

This article discusses how pivot points are used to predict stock price movements. Pivot points are technical analysis tools that are calculated using the previous day's high, low, and close prices to determine support and resistance levels. The most common method is the five-point system, which derives a pivot point and two support and two resistance levels. Another variation includes the opening price in the calculation. Pivot points help analysts and traders identify potential price points where major price movements may occur.

Uploaded by

SIightly
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
83 views

Using Pivot Points For Predictions

This article discusses how pivot points are used to predict stock price movements. Pivot points are technical analysis tools that are calculated using the previous day's high, low, and close prices to determine support and resistance levels. The most common method is the five-point system, which derives a pivot point and two support and two resistance levels. Another variation includes the opening price in the calculation. Pivot points help analysts and traders identify potential price points where major price movements may occur.

Uploaded by

SIightly
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

This article and more available at Investopedia.com http://www.investopedia.com/printable.asp?a=/articles/technical/04/041...

Using Pivot Points for Predictions


By Justin Kuepper
Contact Justin
April 14, 2004

We often hear market analysts or experienced traders talking about an equity price nearing a
certain support or resistance level, each of which is important because it represents a point at
which a major price movement is expected to occur. But how do these analysts and
professional traders come up with these so-called levels? One of the most common methods is
using pivot points, and here we take a look at how to calculate and interpret these technical
tools.

How to Calculate Pivot Points


There are several different methods for calculating pivot points, the most common of which is
the five-point system. This system uses the previous day's high, low and close, along with two
support levels and two resistance levels (totaling five price points) to derive a pivot point. The
equations are as follows:

R2 = P + (H - L) = P + (R1 - S1)
R1 = (P x 2) - L
P = (H + L + C) / 3
S1 = (P x 2) - H
S2 = P - (H - L) = P - (R1 - S1)

Here, "S" represents the support levels, "R" the resistance levels and "P" the pivot point. High,
low and close are represented by the "H", "L" and "C" respectively. (Note that the high, low
and close in 24-hour markets [such as forex] are often calculated using New York closing time
[4:00 p.m. EST] on a 24-hour cycle. Limited markets [such as the NYSE] simply use the high,
low and close from the day's standard trading hours.)

Take a look at the following example of the five-point system, which illustrates a projection of
Microsoft's stock movement. Note the pivot point and the support and resistance levels.

Chart provided by Yahoo! Finance

Another common variation of the five-point system is the inclusion of the opening price in the
formula:

P = ((Today's O) + Yesterday's (H + L + C)) / 4

1z2 2005-04-22 12:22


This article and more available at Investopedia.com http://www.investopedia.com/printable.asp?a=/articles/technical/04/041...

Here, the opening price, "O", is added to the equation. Note that the opening price for foreign
exchange markets is simply the last period's closing price. The supports and resistances can
then be calculated in the same manner as the five-point system, except with the use of the
modified pivot point.

Yet another pivot point system was developed by Tom DeMark, a famous technical analyst and
president of Market Studies, Inc. This system uses the following rules:

** This article and more are available at Investopedia.com - Your Source for Investing Education **

2z2 2005-04-22 12:22

You might also like