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)
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.