EDU Articles
Learn about investing, trading, retirement, banking, personal finance and more.
What are Pivot Points?
Pivot points are quick-reference tools used in intra-day trading that give the trader benchmarks and perspective while short-term price movements happen.
Pivot points are set by taking the high, low, and close price levels of a stock market index or individual security for the previous day or week and basing support and resistance levels from there by multiplying those numbers by simple factors.
These multiple might be very simple, such as 2x or 3x, or using Fibonacci numbers, which is still a simple calculation if you have the Fibonacci numbers. These are meant to be very quickly generated on a piece of scratch paper, and because of their simplicity, they were a favorite among floor traders.
Now that the world has fewer and fewer floor traders, pivot points are used less than there were, but they still can serve as guides to investors who are trading price movements over very short time frames, such as 5 or 10 minutes.
The actual practices for trading on pivot points would require a little more space than we have here, especially since there are many different ways to compute them, but rest assured that it is not overly complicated.
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