Pivot Points

Professional traders and market makers use pivot points to identify important support and
resistance levels. Simply put, a pivot point and its support/resistance levels are areas at
which the direction of price movement can possibly change.
Pivot points are especially useful to short-term traders who are looking to take advantage
of small price movements.
Pivot points can be used by both range-bound traders and breakout traders. Range-bound
traders use pivot points to identify reversal points. Breakout traders use pivot points to
recognize key levels that need to be broken for a move to be classified as a real deal
breakout.
The pivot point and associated support and resistance levels are calculated by using the
last trading session’s open, high, low, and close.
The calculation for a pivot point is shown below:

Pivot point (PP) = (High + Low + Close) / 3

Support and resistance levels are then calculated off the pivot point like so:

First level support and resistance:
First support (S1) = (2*PP) – High
First resistance (R1) = (2*PP) – Low
Second level of support and resistance:
Second support (S2) = PP – (High – Low)
Second resistance (R2) = PP + (High - Low)

Don’t worry you don’t have to perform these calculations yourself. Your charting software
will automatically do it for you and plot it on the chart.
Also keep in mind that some charting software also provides additional pivot point
features such as a third support and resistance level and intermediate levels or mid-point
levels (levels in between the main pivot point and support and resistance level).

Source : School of Pipsology final
for education only

GBU ^.^