Pivot points are a great way for traders to pick their entry and exit levels. This strategy was used by many floor traders because they couldn’t look at the charts while standing in the fast-paced pits, therefore they would calculate their support and resistance levels prior to the open. There are five price levels which make up the pivot points that are PP (pivot point), R1 (first resistance), S1 (first support), R2 (second resistance) and S2 (second support). It is common for the market to trade between S1 and R1 for the day, but should the market go above or below these levels than R2 and S2 should provide a much stronger level of support and resistance. There are various ways to use these figures to trade depending on how conservative or aggressive you are. Aggressive traders could short the market on a rally to the pivot point and look to take profits on a pullback to R1, while they would do the opposite if the market was currently above the pivot. Less aggressive traders typically wait for a test of R1 or S2 to get long or short and conservative traders wait for a test of R2 or S2 to get long or short. Pivot points can also be figured out on a weekly basis for position traders. These figures are mathematically calculated using the previous day’s open, high, low and close.
Below are today’s daily figures based on the formula I use for the December S&P E-mini. If you are interested in learning more about pivot points in any market or other strategies I recommend, please contact me at 800-826-1120 or email@example.com