Pivot points are calculated support and resistance levels based on the previous period’s high, low, and close prices, appearing as horizontal lines on the chart that act as upper indicators for the current trading period. Originally used by floor traders before computers to quickly identify key levels, pivot points provide objective, mathematically-derived price targets that become self-fulfilling prophecies as traders cluster orders around them. For option traders, pivot points offer precise strike selection levels and high-probability reversal zones, especially powerful for weekly options since these levels reset each week. Understanding how to calculate and trade pivot points transforms each trading day from uncertainty into a structured roadmap with clear decision points.
How Pivot Points Work
Mathematical objectivity:
Basic Calculation
Central Pivot Point (PP): PP = (High + Low + Close) / 3
Support and Resistance Levels:
- R1 = (2 × PP) – Low
- S1 = (2 × PP) – High
- R2 = PP + (High – Low)
- S2 = PP – (High – Low)
- R3 = High + 2(PP – Low)
- S3 = Low – 2(High – PP)
Previous period’s data creates current levels.
Time Frames
Daily Pivots: Use yesterday’s data Weekly Pivots: Use last week’s data Monthly Pivots: Use last month’s data
Daily most common for short-term trading.
Types of Pivot Points
Different calculation methods:
Classic/Standard Pivots
- Original floor trader method
- Simple calculation
- Most widely used
- Seven levels total
Fibonacci Pivots
Replace standard multipliers with Fibonacci:
- R1 = PP + 0.382(High – Low)
- R2 = PP + 0.618(High – Low)
- R3 = PP + 1.000(High – Low)
- Combines two powerful concepts
Camarilla Pivots
Tighter levels for range trading:
- Focus on mean reversion
- Eight levels total
- Closer to current price
- Day trading favorite
Woodie’s Pivots
Emphasizes closing price:
- PP = (High + Low + 2×Close) / 4
- Different weight distribution
- Trending market adaptation
Trading Pivot Points
Systematic approaches:
Pivot Point as Fulcrum
Above Central Pivot:
- Bullish bias for day
- Look to sell puts
- Target resistance levels
- Support at pivot
Below Central Pivot:
- Bearish bias for day
- Look to sell calls
- Target support levels
- Resistance at pivot
Central pivot determines daily sentiment.
Support/Resistance Trading
At Resistance (R1, R2, R3):
At Support (S1, S2, S3):
First test often strongest reaction.
Pivot Points for Options
Strategic applications:
Strike Selection
Daily Trading:
Strikes beyond pivot levels.
Intraday Management
0-DTE Options:
- Monitor pivot touches
- Quick reversals common
- Scalp opportunities
- Multiple round trips
Weekly Options
Monday Setup:
- Calculate weekly pivots
- Note all levels
- Plan week’s trades
- Adjust daily
Weekly pivots stronger than daily.
Pivot Point Characteristics
Understanding behavior:
First Touch
- Often strongest reaction
- High reversal probability
- Best entry opportunity
- Quick profits possible
Multiple Tests
- Each test weakens level
- Third test often breaks
- Reduce position size
- Prepare for breakthrough
Pivot Clusters
When different timeframes align:
- Daily R1 = Weekly PP
- Major decision point
- Strong reversal zone
- Size up positions
Advanced Pivot Strategies
Sophisticated applications:
Pivot Range Trading
Between pivot and S1/R1:
Pivot Breakout Trading
Beyond S2/R2:
- Trending day developing
- Don’t fade these moves
- Trade with direction
- Wider ranges expected
Central Pivot Test
Failed Test:
- Price approaches PP
- Fails to break through
- Confirms bias
- Enter positions
Successful Test:
- Price breaks PP
- Bias potentially shifting
- Wait for confirmation
- Adjust strategy
Pivot Points and Market Context
Environmental considerations:
Trending Markets
- Respect pivots less
- Break multiple levels
- Trade with trend
- Use as targets only
Range-Bound Markets
- Respect pivots more
- Bounce at levels
- Perfect environment
- Trade reversals
Gap Opens
- Pivots still valid
- Adjust expectations
- Watch for fill
- Modified targets
Monthly and Weekly Pivots
Longer-term applications:
Monthly Pivots
- Major support/resistance
- Institution awareness high
- Plan monthly trades
- LEAPS consideration
Weekly Pivots
- Swing trade levels
- Weekly option guides
- Stronger than daily
- Trend determination
Layer multiple timeframes for confluence.
Common Pivot Patterns
Recognizable behaviors:
Pivot Sandwich
Price trapped between levels:
- Can’t break above R1
- Can’t break below S1
- Compression building
- Breakout coming
Pivot Ladder
Trending through levels:
- Open at S2
- Close at R2
- Each level brief pause
- Strong trend day
Pivot Magnet
Price drawn to levels:
- Approaches from distance
- Accelerates to pivot
- Often overshoots
- Then reverses
Pivot Point Automation
Modern applications:
Trading Platforms
- Auto-calculate levels
- Plot on charts
- Multiple types available
- Custom settings
Alerts and Scanners
- Price approaching pivot
- Pivot breaks
- Multiple touches
- Confluence detection
Backtesting
- Historical performance
- Win rates by level
- Optimal strategies
- Statistical validation
Common Pivot Mistakes
Ignoring Time Frame: Daily pivots for weekly trades Fighting Clear Breaks: Pivots fail in trends No Other Confirmation: Pivots alone insufficient Wrong Calculation Type: Match to market behavior
Building a Pivot System
Systematic approach:
Pre-Market Routine
- Calculate daily pivots
- Note weekly/monthly levels
- Identify confluences
- Plan option strikes
- Set alerts
Intraday Execution
- Monitor pivot tests
- Execute at extremes
- Manage by levels
- Trail stops to pivots
Performance Tracking
- Win rate by pivot level
- Best time frame
- Optimal hold time
- R1/S1 vs R2/S2 performance
Key Takeaways
Pivot Points:
- Upper indicators from math
- Calculated support/resistance
- Previous period creates current
- Self-fulfilling prophecies
- Objective decision levels
- Perfect for options
- Reset provides fresh trades
Pivot points are the option seller’s daily roadmap, providing mathematically-derived levels that remove subjectivity from trading decisions. These upper indicators create a structured framework for each trading period, showing exactly where to expect support, resistance, and reversals. Master pivot points to transform chaotic price action into organized opportunities. Remember: while other indicators lag, pivot points lead – giving you tomorrow’s key levels today, tonight, before the market even opens.