Forex
Pivot Point Calculator:
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A pivot point calculator is used on a daily basis by many successful traders to pinpoint key support and resistance levels where they can expect price to react.
You can download a free pivot point calculator from some web sites on the net by doing a simple search in your favorite search engine.
However, I like to use a pivot point calculator I can customize according to the exact currency pairs I like trading. Also I like to have additional pivot levels marked for reference.
A Microsoft Excel spreadsheet lends itself very easily to creating your own pivot point calculator. (Or if you wish you can download a free copy of the one I use click here)
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The Formula
The formula for creating pivot points is based on 4 figures you need to obtain from your Forex charting software. You just need these values which can be obtained by looking at yesterday's candle on a daily chart:
- High
- Low
- Open
- Close
The key figure in your pivot point calculator is the central pivot point. This value is obtained by adding the High, Low and Close figures together and dividing the total by 3. That's it! You now have your central pivot point.
This pivot point now gives you the basis for calculating the other levels such as R1, R2, S1, and S2.
As the distance between these levels can sometimes be quite significant, many traders also put mid-levels on their charts and refer to them as M1, M2, M3, and M4. They are positioned as follows:
- M1 - Between S1 and S2
- M2 - Between S2 and the Central Pivot Point
- M3 - Between the Central Pivot Point and R1
- M4 - Between R1 and R2
The formulas for the other levels are:
S1: (Central Pivot Point x 2) minus the High
S2: Central Pivot Point minus (R1 minus S1)
R1: (Central Pivot Point x 2) minus the Low
R2: (Central Pivot Point minus S1) plus R1
Once these levels are calculated it is then easy to put the M levels in your pivot point calculator.
M1: S1 minus S2 divided by 2
M2: Central Pivot Point minus S1 divided by 2
M3: R1 minus Central Pivot Point divided by 2
M4: R2 minus R1 divided by 2
This is a link to a spreadsheet that is setup for the six major currency pairs. I use this pivot point calculator as part of my preparation for each day's trading session.
I simply call up my daily chart, hover my mouse over yesterday's candle which gives me automatically a popup window showing the High, Low, Close and Open values.
I then just type them in to the appropriate cells on the spreadsheet and all the pivot points are automatically calculated for me.
After this I insert horizontal lines to mark the main pivot levels on the 15 minute chart. This enables you to see the general area of price activity for the day.
Sometimes price will go way beyond the average range for the day and exceed R2 or S2. On the spreadsheet referenced below, additional pivot levels are calculated to give some guidance for such trading days.
Pivot
points are one of the key tools traders use to determine where
price is likely to go and where it is likely to stall. Either use
the formulas above to create your own pivot point calculator or use
the
free download
here.
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