Pivot Points

The traditional Main Pivot Point (PP) is calculated using the formula: PP = (Previous High + Previous Low + Previous Close) ÷ 3. From this level, additional support and resistance levels—such as the first resistance (R1) and first support (S1), extending to second and third levels—are derived using formulas based on the range between the previous high and low.

Pivot points are widely used in the forex markets to identify potential support and resistance levels before the start of a new trading session, particularly by day traders. Price action trading above the main pivot point is generally considered an indicator of bullish sentiment during the session, whereas trading below it suggests bearish sentiment.

The derived support and resistance levels are also used as potential take-profit targets or as watch zones for possible reversals. These levels often align with other technical tools, such as Fibonacci retracements or trendlines, enhancing their technical significance at confluence zones.

A common mistake is relying on pivot points in isolation from broader market context or high-impact economic news releases during the session. Another mistake is treating them as entirely static barriers, failing to account for the fact that they change daily with the previous session's data, requiring regular recalculation.