Pivot points are a popular technical analysis tool used in the stock market to identify potential levels of support and resistance. They are based on the idea that prices tend to continue to move in the same direction as the previous day’s price action.
There are several classic pivot point calculation methods, including:
- Standard Pivot Points: This is the most common pivot point calculation method and involves finding the average of the high, low, and closing prices of a stock or market index from the previous day. This average is used as the pivot point, with support and resistance levels calculated as a multiple of the difference between the pivot point and the high or low.
- Fibonacci Pivot Points: Similar to the standard pivot points, this method uses the high, low, and close of the previous day to calculate pivot points, but also takes into account Fibonacci ratios to generate additional support and resistance levels.
- Camarilla Pivot Points: This is a variation of the standard pivot points that uses a different formula to calculate support and resistance levels. The Camarilla pivot points are considered to be more accurate and responsive to price changes, particularly in fast-moving markets.
Pivot points can be useful in helping traders identify key levels at which the price of a stock or market index may change direction. However, it’s important to keep in mind that pivot points are just one tool in an analyst’s toolbox and should not be relied upon solely for making trading decisions.