What is a pivot point?

What is a pivot point?

A pivot point is a technical indicator used by traders to determine overall market trends over various windows. This indicator used to be solely the average of the high, low, and closing prices of the previous day, but modern trading utilizes different versions of this concept for day trading and short term analysis. In many cases, pivot points are now quick-reference tools used in intra-day trading that give the trader benchmarks and perspective as short-term price movements happen. How the trader calculates the pivot point depends on whether the point is going to be part of a chart with a scope of several minutes or the present day or present week.

Pivot points are calculated by averaging the high, low, and close price levels of a stock market index or individual security for a previous period: yesterday, last week, last month, and so on.

Support and resistance levels for indicator lines can be calculated from the average by multiplying those numbers by simple factors. These multiple might be very simple, such as 2x or 3x, or using Fibonacci numbers. Because of this simplicity, they were a favorite reference for floor traders, who could do quick calculations on scratch paper.

Intraday traders use technical indicators to find inefficiencies or price fluctuations that they believe will make for successful trades. These charting tools serve as guidelines for buying and selling opportunities. There are thousands of technical indicators, but the most popular ones are the MACDBollinger BandsStochastic Oscillators, the Directional Movement Indicator and various patterns of price behavior, such as the Cup-and-Handle pattern, the Head-and-Shoulders pattern, the Pennant pattern, and the Broadening Wedge patterns.

Artificial intelligence tools can help locate these patterns for traders to capitalize on. There are myriad ways to use technical analysis in trading, and which indicator or methodology a trader decides to use usually depends on their experience, skillset, and the quality of the tools (A.I.) available to help them find trade ideas.