The Hindu Business Line : Trader's Corner

The pivot point trading system is designed for the less clairvoyant day traders like us. This is a simple trading system that can enhance the trading of those who do not want to get distracted with intra day graphs.

All that is needed is the previous day's high, low and closing price and voila, we have an entire range of supports and resistances that can be found invaluable in day trading.

The USP of pivot point trading is that it is predictive in nature i.e. it can forecast the range for the trading day ahead.

The formula for calculating the pivot points and the other supports and resistances are as follows,

R3 = H+2 X (P - L)

R2 = P+ (H - L) = P + (R1 - S1)

R1 = (PX2) - L

P = (H+L+C)/3

S1 = (PX2) - H

S2 = P - (H - L) = P - (R1 - S1)

S3 = L - 2 X (H - P)

P = Pivot point, R1 = resistance 1, R2 = resistance 2, R3 = resistance 3, S1 = support 1, S2 = support 2, S3 = support 3, H = high, L = low.

The pivot point needs to be calculated first and the other supports and resistances should be calculated later as the formulas for calculating the supports and resistances need the pivot point value. Free online calculators for calculating the pivot points are available on the web, which can be used to calculate the pivot points.

We will take the discussion on pivot point forward next week to look at how short and long trades can be made with the help of pivot point.

We will also illustrate the pivot point analysis with the help of an example.

Lokeshwarri S.K.

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