A Pivot Calculator is a tool used in technical analysis of financial markets to calculate pivot points, which are used to determine potential support and resistance levels. Pivot points are widely used by traders in forex, stocks, commodities, and other financial instruments to identify possible price turning points.
Key Functions of a Pivot Calculator:
- Calculate Pivot Points: The primary function is to calculate the pivot point, which is the average of the high, low, and closing prices from the previous trading period.
- Determine Support and Resistance Levels: It also calculates multiple support and resistance levels based on the pivot point. These levels help traders identify possible price floors (support) and ceilings (resistance).
- Enhance Trading Decisions: By identifying these key levels, traders can make more informed decisions about entry and exit points, as well as set stop-loss and take-profit levels.
Pivot Point Calculation:
The most common method for calculating pivot points is the standard (or classical) method, which involves the following steps:
- Calculate the Pivot Point (P): P = (High + Low + Close) / 3
– High: Highest price of the previous trading period.
– Low: Lowest price of the previous trading period.
– Close: Closing price of the previous trading period.
- Calculate the First Support Level (S1) and First Resistance Level (R1):
- S1 = 2P – High
- R1 = 2P – Low
- Calculate the Second Support Level (S2) and Second Resistance Level (R2):
- S2 = P – (High – Low)
- R2 = P + (High – Low)
- Calculate the Third Support Level (S3) and Third Resistance Level (R3):
- S3 = Low – 2(High – P)
- R3 = High + 2(P – Low)
Using a Pivot Calculator:
Traders can use online Pivot Calculators provided by various financial websites and trading platforms. These calculators typically require the following inputs:
- High price of the previous trading period
- Low price of the previous trading period
- Closing price of the previous trading period
The calculator then provides the pivot point and the support and resistance levels, which traders can use to plan their trading strategies.
Example Calculation:
Let’s assume the following prices for the previous trading period:
- High: 1.2000
- Low: 1.1900
- Close: 1.1950
- Calculate the Pivot Point (P):
- P = (1.2000 + 1.1900 + 1.1950) / 3= 1.1950
- Calculate the First Support Level (S1) and First Resistance Level (R1):
- S1 = 2 x 1.1950 – 1.2000 = 1.1900
- R1 = 2 x 1.1950 – 1.1900 = 1.2000
- Calculate the Second Support Level (S2) and Second Resistance Level (R2):
- S2 = 1.1950 – (1.2000 – 1.1900) = 1.1850
- R2 = 1.1950 + (1.2000 – 1.1900) = 1.2050
- Calculate the Third Support Level (S3) and Third Resistance Level (R3):
- S3 = 1.1900 – 2(1.2000 – 1.1950) = 1.1800
- R3 = 1.2000 + 2(1.1950 – 1.1900) = 1.2100
These levels (P, S1, S2, S3, R1, R2, R3) can then be used by traders to identify potential entry and exit points, as well as to set stop-loss and take-profit levels in their trading strategies.
