5 Pivot Point Trading Approaches to Enhance Your Investment Strategy

Pivot point trading determines several support and resistance levels.

By Marcel Deer

Edited by Dragan Stevanovic

Updated November 21, 2024.

A sign that says pivot in front of a lot of numbers

Predicting market movements with complete certainty is nearly impossible. However, traders can utilize various tools to understand historical price behavior and identify potential turning points.
Pivot points are calculated reference points based on past price movements. They can help traders identify potential support and resistance levels based on previous sessions' lows, highs, and closing positions. This allows them to make more informed decisions about entering and exiting trades.
Note: Fortrade offers the ability to trade the price changes of instruments with CFDs and NOT to buy/sell ownership of instruments themselves. All the information in this blog is purely educational and should NOT be considered advice.
» Ready to get started? See our list of CFDs on currencies and stocks﻿
Detailed Analysis of 5 Pivot Point Trading ApproachesEach pivot point has a slightly different formula applicable to a separate instrument class and the type of trade.
For instance, Woodie's pivot point trading method is better suited for short-term trading and day traders than the Classic Pivot Point method.
Below we'll look at 5 most commonly used pivot point trading methods.
1. Classic Pivot Point The classic pivot points use the previous day's prices to establish the central pivot point. They are easy to calculate and many traders use them to determine precise reversal or breakout levels: 
 Pivot Point (PP) = (Previous Day’s High + Previous Day’s Low + Previous Day’s Close) / 3
 First Support (S1) = (2 x PP) – Previous Day’s High
 First Resistance (R1) = (2 x PP) – Previous Day’s Low
 Second Support (S2) = PP – (R1 – S1)
 Second Resistance (R2) = PP + (R1 – S1)
 Third Support (S3) = PP – 2 x (R1 – Pivot Point)
 Third Resistance (R3) = PP + 2 x (R1 – Pivot Point)
As a result, traders may be able to identify key price points for entry and exit and employ effective risk management accordingly.
These pivot points could work well in volatile markets where price respects support and resistance levels. However, they could include false breakouts, so other indicators may be needed as well. 
They can be applied across most instrument classes—particularly stocks, forex, and commodities.
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2. The Fibonacci MethodFibonacci pivot points use Fibonacci mathematical ratios to calculate support and resistance levels beyond standard pivot points. Fibonacci retracements bring in extra granularity, which results in a more comprehensive price analysis:
 Pivot Point (PP) = (High + Low + Close) / 3
 Support 1 (S1) = PP - 0.382 x (High - Low)
 Support 2 (S2) = PP - 0.618 x (High - Low)
 Resistance 1 (R1) = PP + 0.382 x (High - Low)
 Resistance 2 (R2) = PP + 0.618 x (High - Low)
 Resistance 3 (R3) = PP + (High - Low)
Like classic pivot points, false breakouts still occur around Fibonacci levels, so you may need confirmation from other indicators. 
Fibonacci pivot points are reference points that could improve risk management and highlight additional possibilities to set stop-loss and take-profit orders.
» Consider learning about other algorithmic trading strategies﻿
3. Woodie's Pivot Point CalculationWoodie's pivot points use a unique formula that includes the previous day's open price and the current day's high, low, and close prices to calculate levels. 
 Pivot Point (PP) = (High + Low + (Today's Open x 2)) / 4
 Resistance 1 (R1) = (2 x PP) - Low
 Resistance 2 (R2) = PP + (High - Low)
 Resistance 3 (R3) = High + 2 x (PP - Low)
 Support 1 (S1) = (2 x PP) - High
 Support 2 (S2) = PP - (High - Low)
 Support 3 (S3) = Low - 2 x (High - PP)
Similarly to classic pivot points, Woodie's pivot could be useful for day trading and offer potential entry and exit points. Though helpful in calculating daily spreads and intraday trading levels, Woodie's method is less widely accepted than others.
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4. Camarilla Pivot Point CalculationLike Woodie's pivot point, Camarilla uses a distinct formula to calculate support and resistance levels. Traders use the previous day’s high, low, and closing prices and multiply them by a specific factor:
 Pivot point (PP) = (High + Low + Closing) / 3
 First support (S1) = Closing – ((High - Low) x 1.0833)
 Second support (S2) = Closing – ((High - Low) x 1.1666)
 Third support (S3) = Closing – ((High - Low) x 1.2500)
 Fourth support (S4) = Closing – ((High - Low) x 1.5000)
 First resistance (R1) = Closing + ((High - Low) x 1.0833)
 Second resistance (R2) = Closing + ((High - Low) x 1.1666)
 Third resistance (R3) = Closing + ((High - Low) x 1.2500)
 Fourth resistance (R4) = Closing + ((High - Low) x 1.5000)
This creates multiple pivot points within a narrow range, helping traders understand potential entry and exit points and stop-loss and take-profit limits.﻿
Camarilla pivot points allow traders to identify key intraday levels for decision-making and risk management. They work better in range-bound markets where the price stays within the calculated levels.
Even with all this, trend identification can still be difficult, so it's best to perform additional analyses to confirm trades. 
» Like technology? Here's how to use AI to enhance your trading plan﻿
5. DeMark's Pivot Point MethodDeMark's formula is different in that it is based on the relationship between the open and the close prices:
If Close < Open then X = (High + (Low x 2) + Close)
If Close > Open then X = ((High x 2) + Low + Close)
If Close = Open then X = (High + Low + (Close x 2))
Once X is calculated: 
 Pivot Point (PP) = X / 4
 First Support (S1) = X / 2 - High
 First Resistance (R1) = X / 2 - Low
In general, these calculations could provide traders with early signals of trend exhaustion or continuation. This might help them anticipate potential trend reversals more easily.
However, DeMark's pivot calculations are complex and require a deep understanding of the method to obtain accurate pivot points. These pivot points are more commonly used in forex and futures markets, where trends are stronger, so the likelihood of false signals is lower.
» Learn how to use CFD technical analysis for better trading decisions﻿
Turning Points: Exploring Market PossibilitiesPivot points help traders make informed decisions based on their market and trading type. Traders and investors should tailor their strategies to their preferences, considering the ever-changing nature of investment markets.
However, no method is foolproof. It’s best to use these approaches in conjunction with other methods, indicators, and comprehensive research.
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