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Pivot point calculation is the average of the high, low and the closing prices. Support and Resistance calculated by the pivot point trading strategy is the simplest but most effective. Calculations done using this strategy give clear indications of the strength or weakness existing in the market. Most technical analysts use this Forex Trading strategy. Pivot point acts like a predictive indicator and calculates new support and resistance level. If the market price in any day goes to the level lower than the pivot point then this level can be used as new resistance level and if the market price in any day goes to the level higher than the pivot point then this level is a new support level.

There are many different methods for calculating the pivot point and one of which is the most famous is the five point system. The calculation of this method uses yesterday’s high, low and closing price with two resistance levels and two support levels. So there are total five points in this method and this is why this method is known as the five-point system. The equations of calculation are given below.

Resistance2 = Pivot + (yesterday’s high – yesterday’s low) = Pivot + (Resistance1 — Support1)

Resistance1 = (Pivot x 2) – yesterday’s low

Pivot = (yesterday’s high + yesterday’s low + yesterday’s Closing price) / 3

Support1 = (Pivot x 2) – yesterday’s high

Support2 = Pivot — (yesterday’s high – yesterday’s low) = Pivot — (Resistance1 — Support1)

One more method to calculate pivot point resistance is shown. The calculation of this method depends on the price values of the past trading sessions and the use of Fibonacci ratios. The first step in this calculation is to find out the range of the previous trading session. Range is calculated using the following formula.

Range = Yesterday’s high value – Yesterday’s low value

Now multiply this range by the different Fibonacci ratios.

RangeXR1 = Range x 1.382

RangeXR2 = Range x 1.5

RangeXR3 = Range x 1.618

After calculating the range, resistance is to be calculated. Fibonacci resistance values can be calculated by adding RangeXR1, RangeXR2 and RangeXR3 to the closing price of the yesterday’s trading session.

FibonacciResistance1 = Yesterday’s Closing Price + RangeXR1

FibonacciResistance2 = Yesterday’s Closing Price + RangeXR2

FibonacciResistance3 = Yesterday’s Closing Price + RangeXR3

After resistance is calculated, support levels need to be found. Fibonacci support values can be calculated by subtracting RangeXR1, RangeXR2 and RangeXR3 to the closing price of the yesterday’s trading session.

FibonacciResistance1 = Yesterday’s Closing Price — RangeXR1

FibonacciResistance2 = Yesterday’s Closing Price — RangeXR2

FibonacciResistance3 = Yesterday’s Closing Price — RangeXR3