Pivot Points are used to determine critical price and support/resistance levels. The general idea is to sell when R1 or R2 price level is hit, and buy when S1 or S2 price levels are hit. This of course assumes that you also have confirmation signal. A Pivot Point is the price at which the direction of price movement changes. It is calculated using data from the previous trading day. By looking at the high, low, and close, you can calculate the next day's pivot point as well as support and resistance levels.

Click to know more about pivot points for stock, shares and forex trading.

You are going to love this lesson. Using pivot points as a trading strategy has been around for a long time and was originally used by floor traders. This was a nice simple way for floor traders to have some idea of where the market was heading during the course of the day with only a few simple calculations.

The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous days high, low and close, a series of points are derived. These points can be critical support and resistance levels. The pivot level, support and resistance levels calculated from that are collectively known as pivot levels.

Every day the market you are following has an open, high, low and a close for the day (some markets like forex are 24 hours but generally use 5pm EST as the open and close). This information basically contains all the data you need to use pivot points.

The reason pivot points are so popular is that they are predictive as opposed to lagging. You use the information of the previous day to calculate potential turning points for the day you are about to trade (present day).

Here lies the trick. Because so many traders follow pivot points you will often find that the market reacts at these levels. This give you an opportunity to trade.

Learn in easy and simple ways to trade in stocks and shares or Forex trading using pivot points