Many successful traders use a pivot point calculator on a daily basis to identify 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 on your favorite search engine.
However, I like to use a pivot point calculator that I can customize according to the exact currency pairs that I like to trade. I also like to have additional pivot levels marked for reference.
A Microsoft Excel spreadsheet easily lends itself to creating your own pivot point calculator. (Or if you want, you can download a free copy of the one I use listed in the resource box below.)
The formula
The formula for creating pivot points is based on 4 figures that you need to get from your Forex charting software. You only need these values which can be obtained by looking at yesterday’s candle on a daily chart:
- High
- Low
- Opened
- To close
The key figure in your pivot point calculator is the center pivot point. This value is obtained by adding the Maximum, Minimum and Near figures 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 middle levels on their charts and refer to them as M1, M2, M3, and M4. They are placed as follows:
- M1: between S1 and S2
- M2: between S2 and the central pivot point
- M3: between center pivot point and R1
- M4: between R1 and R2
The formulas for the other levels are:
S1: (Center pivot point x 2) minus height
S2: Center pivot point minus (R1 minus S1)
R1: (Center pivot point x 2) minus the bass
R2: (Center pivot point minus S1) plus R1
Once these levels are calculated, it is easy to put the M levels into your pivot point calculator.
M1: S1 minus S2 divided by 2
M2: Center pivot point minus S1 divided by 2
M3: R1 minus the center pivot point divided by 2
M4: R2 minus R1 divided by 2
In the resource box below there is a link to a spreadsheet that is set up 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 my daily chart, hover my mouse over yesterday’s candle which automatically gives me a popup showing the High, Low, Close and Open values.
Then I just type them into 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 major pivot levels on the 15-minute chart. This allows you to see the general area of price activity during the day.
Sometimes the price will go well beyond the average range of the day and will exceed R2 or S2. In the spreadsheet referenced below, additional pivot levels are calculated to provide guidance for those 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 stop. Use the formulas above to create your own pivot point calculator or use the free download below.
