The pivot point for the day is calculated by taking the prior day’s (High + Low + Close) / 3. These are commonly used by floor traders in the trading pits to identify key support and resistance levels.
If the market opens above the daily pivot, look for short entries for a move down to test the pivot and vice versa. If the pivot isn’t tested in the morning session, then look for it to test in the afternoon.
- Daily pivot levels R3/S3 will contain the market 90 percent of the time.
- Take note of Weekly and Monthly pivots
Identifying The Types of Market Conditions
Trending Day – Market moves to pivot, consolidates and continues
- Wait for move thru pivot level, buy first pullback to pivot level (for longs)
Choppy Day – Also known as a range bound day. Market moves to pivot, consolidates and reverses