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Pivot Point
Standard Support and Resistance numbers
A basic investment strategy commonly used by traders is to buy at support and sell at resistance
Definition: Pivot or Pivot point
The Pivot point can be described as the point of least resistance to the current stock price. It is also a place-holder, or reference point - the point that defines whether a stock price has moved higher or lower.
The Pivot is the average of 3 numbers - the high, the low, and the close from the previous day. The most common formula is written as P=(H + L + C) / 3
As an example, let's pretend we want to plot the Pivot for a stock that closed at the price of 0.15, with the price range that day of 0.175 as the high, and 0.11 as the low
The Pivot would be calculated as
P = (0.175 + 0.11 + 0.15) / 3
P = 0.435 / 3
P = 0.145
So in our example, the stock has a Pivot point of 0.145 - the placeholder or reference point.
Also in our example, the stock closed at the price of 0.15 - above the Pivot.
Definition: Support and Resistance
To calculate Standard Support and Resistance levels, you must know the Pivot point.
The term 'Support' is used to describe a theoretical level where a stocks price 'pivots' and changes direction to a lower price. Most traders like to use more than one support level, and assign labels to indicate the sequence of each level…. Typically three levels are used, and are labeled Support 1, Support 2, and Support 3
Most traders also believe that each support level will act as a sort of shield, and may prevent the price from moving lower. Because of this, support levels are often considered 'buy' triggers.
The reverse is true for Resistance. The term "Resistance' is used to describe a theoretical level where a stocks price 'pivots' and changes direction to a higher price. Most traders like to use more than one resistance level also, and assign labels to indicate the sequence of each level…. Typically three levels are used, and are labeled Resistance 1, Resistance 2, and Resistance 3
In fact, a basic investment strategy commonly used by traders is to buy a stock at support and sell at resistance
As previously stated, to calculate Support and Resistance levels, you must know the Pivot point.
In our previous example, the Pivot was calculated to be 0.145
The formula's to find 3 levels of support are
Support 1 = (2 * Pivot - Rec!High) = (2 x 0.145 minus 0.175) = 0.115
Resistance 1 = (2 * Pivot - Rec!Low) = (2 x 0.145 minus 0.11) = 0.18
Support 2 = Pivot - (Resistance 1 - Support 1) = 0.145 minus (0.18 - 0.115) = .08
Resistance 2 = (Pivot - Support 1 + Resistance 1) = 0.145.minus 0.115 plus 0.18 = .21
Support 3 = Rec!Low - (2 x (Rec!High - Pivot)) = 2 x (0.18 minus 0.145) = .07
Resistance 3 = (2 x (Pivot - Rec!Low) + Rec!High) = 2 x (0.145 minus 0.11) plus 0.175 = 0.245
Our example yields the following Support and Resistance levels - with the Pivot at the center
Stock high 0.175 - low 0.110 - close 0.150
- 0.245 - Resistance 3
- 0.210 - Resistance 2
- 0.180 - Resistance 1
- 0.145 - Pivot
- 0.115 - Support 1
- 0.080 - Support 2
- 0.070 - Support 3
As mentioned previously - a basic investment strategy commonly used by traders is to buy a stock at support and sell at resistance
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