Pivot points are objective, mathematically derived price levels calculated from the previous trading session's high, low, and close. Unlike subjective trendlines or discretionary chart patterns, pivot points produce the exact same numbers on every trader's screen across the world. Originally developed by floor traders on the Chicago commodity exchanges, pivot points remain an essential tool for institutional desks.
The Standard Calculation
Pivot Point (PP) = (High + Low + Close) ÷ 3 R1 = (2 × PP) − Low S1 = (2 × PP) − High R2 = PP + (High − Low) S2 = PP − (High − Low) R3 = High + 2 × (PP − Low) S3 = Low − 2 × (High − PP)
Step-by-Step Worked Numeric Example
To understand how these levels function on live charts, let us walk through a complete numeric calculation using actual EUR/USD daily session figures:
Previous Session OHLC Data: High = 1.0950 | Low = 1.0850 | Close = 1.0910 Total Session Range = 1.0950 − 1.0850 = 0.0100 (100 pips) 1. Central Pivot (PP): PP = (1.0950 + 1.0850 + 1.0910) ÷ 3 = 3.2710 ÷ 3 = 1.0903 2. First Resistance & Support (R1 / S1): R1 = (2 × 1.0903) − 1.0850 = 2.1806 − 1.0850 = 1.0956 S1 = (2 × 1.0903) − 1.0950 = 2.1806 − 1.0950 = 1.0856 3. Second Resistance & Support (R2 / S2): R2 = 1.0903 + (1.0950 − 1.0850) = 1.0903 + 0.0100 = 1.1003 S2 = 1.0903 − (1.0950 − 1.0850) = 1.0903 − 0.0100 = 1.0803 4. Third Resistance & Support (R3 / S3): R3 = 1.0950 + 2 × (1.0903 − 1.0850) = 1.0950 + 0.0106 = 1.1056 S3 = 1.0850 − 2 × (1.0950 − 1.0903) = 1.0850 − 0.0094 = 1.0756
Interpreting Daily Pivots
If price opens above the Central Pivot (PP), market sentiment for the session is considered bullish. Traders look to buy dips into PP or S1 targeting R1 and R2. If price opens below PP, the intraday bias is bearish.
Intraday Trading with Pivots
Institutional desks use S1 and S2 as dynamic profit targets when shorting, or as high-probability bounce zones for long re-entries. When price reaches R2 or S2 early in a trading session without major economic news, mean reversion strategies become exceptionally high-probability.