It is not a foolproof system, but like the use of basic support and resistance, the system tries to use previous important levels to derive others that may be worth watching. Meanwhile the opposite, where a price continues to fall below pivot points during a session, is indicative of a downtrend. Pivot points can be used to identify the overall trend, since a move through pivot points to the upside indicates an uptrend. Instead of using daily pivot points, a trader can also use weekly data, useful for longer-term trading. Pivot Points can be added on to a chart in the IG platform by selecting the indicator drop down menu and choosing ‘pivot points’ or by right-clicking to select them. Like all other indicators, there are other ways of calculating pivot points, but the above is the standard method. Resistance 2 (R2) = pivot point + (previous high - previous low) Resistance 1 (R1) = (pivot point x 2) - previous low Support 2 (S2) = pivot point - (previous high - previous low) Support 1 (S1) = (pivot point x 2) - previous high Pivot point (P) = (previous high + previous low + previous close) / 3 This uses the previous high, low and close, and then also employs two extra support levels and two additional resistance levels to provide five pivot points. The usual system used is the five-point system. Essentially, they are another form of support and resistance, with traders attempting to identify where prices may find support after falling, or run into resistance after rising. Pivot points can help determine the direction of movement for a market within the context of a broader trend.

If the market in the next session trades above the pivot point this is seen to be bullish, whereas if the market trades below the pivot point it is seen to be bearish. They are used to identify market movements, based on the high, low and closing price of the previous day. Pivot points have a long history in trading, and are a commonly used technique to this day.

How to use pivot points