Simply put, pivot points use the high, low, and closing prices of the previous trading day to calculate 5 potential intraday support or resistance for market activity on the current trading day. Assuming you know the high, low, and closing prices of the previous trading day, you can calculate the aforementioned five prices.

Let’s demonstrate how to figure it out.

The previous trading day’s high point = H

The previous trading day’s low point = L

The previous trading day’s closing price = C

< p>The first price level to be calculated is the pivot point, which is located in the middle of the other four price levels, with two support and resistance levels above and below it.

Pivot point=(H+L+C)÷3

Resistance 1=(2×pivot point)-L

Support 1=( 2×pivot point)-H

Resistance 2 = pivot point + (H-L)

Support 2 = pivot point- (H - L)

If you are familiar with this tool from the futures market, then you are probably used to a slightly different original method of calculating pivot points than the one described above, which involves using the "opening price" of the current trading day and dividing the result by 4 .

However, in the foreign exchange market, the opening price of the current trading day is actually generally the same as the closing price of the previous trading day, so the original algorithm is of little significance. Another important point is that there are no strict rules for how to calculate pivot points, so you can probably try different combinations to see which one works best.

Let's look at an example. 'If we find that the high of EUR/USD on the previous trading day was 1.219 40, the low was 1.212 50, and the closing price was 1.215 10, then the pivot point should be:

Pivot point = (1.219 41.212 51.215 10)÷3= 1.215 70

Resistance 1= (2×1.215 70) - 1.212 50= 1.218 90

Support 1= (2x1.215 70 ) - 1.21940= 1.212 00

Resistance 2= 1.215 7 (1.219 40 - 1.212 50)= 1.222 60

Support 2=1.215 70 - (1.219 40 - 1.212 50)= 1.208 80

The above five prices can be reflected as horizontal lines on the intraday chart of the day - such as the 30-minute chart.

When the market is close to these prices, if the exchange rate moves from bottom to upward, then it plays a resistance role; if it moves from top to bottom, then it plays a support role. Unless there is a sharp move in the first few hours of the current trading day, the market will probably start at a level between Support 1 and Resistance 1.

Of course, sometimes the market quickly moves away from the pivot points calculated based on the previous trading day, and then these positions will be of little use to you. More often than not, however, market gains or pullbacks do appear to be driven by anticipated pivot points. If you have been preparing to buy a particular currency pair and notice that the market is approaching the first resistance level, you may want to delay your entry slightly.