Traditional Pivot Points – The Trader’s GPS

MSP Traders

The Story Begins…

Picture this.
It’s the mid-1980s on the Stock Exchange floor. No TradingView, no MetaTrader, no algo bots. Just traders shouting orders, waving slips of paper, and phones ringing non-stop.

Among them is a sharp floor trader who carries only a notebook and a calculator. Every morning, before the chaos begins, he writes down a set of numbers: Pivot Point, Support, and Resistance.

These numbers are his map for the day. He knows the market will often pause, reverse, or break around these levels. And with just yesterday’s High, Low, and Close, he’s already prepared.

That simple practice gave birth to one of the most reliable tools in technical analysis: Pivot Points.

Even today, with all the technology at our fingertips, pivots remain as powerful as ever.

This lesson is part of the Premium Training. You can read all of the lessons here.

What Are Pivot Points?

Think of Pivot Points as a GPS for traders.

  • They don’t predict the future with 100% certainty.
  • But they give you probability zones where the market may turn or accelerate.

Just like how Google Maps tells you the nearest U-turn or traffic light, pivot points tell you:

  • Where buyers may step in (support).
  • Where sellers may block the path (resistance).
  • And where the market sentiment shifts (pivot point itself).

The beauty is their simplicity. You don’t need a complex formula. Just yesterday’s High, Low, and Close.

The Formula (Simple as a Chai Recipe 🍵)

The core formula is:

Pivot Point (PP) = (High + Low + Close) ÷ 3

From this, you derive the first layers of support and resistance:

  • S1 = (2 × PP) – High
  • R1 = (2 × PP) – Low
  • S2 = PP – (High – Low)
  • R2 = PP + (High – Low)

Some traders go further:

  • S3 = Low – 2 × (High – PP)
  • R3 = High + 2 × (PP – Low)

But for beginners, PP, S1, and R1 are more than enough to start.

Yellow Line as Central Pivot.
Orange Lines as R1, R2, and R3 (above Central Pivot).
Orange lines as S1, S2 and S3 (below Central Pivot),

A Live Example (Nifty Day)

Let’s calculate pivots for Nifty (An Index in India) using sample data.

Suppose yesterday’s Nifty values were:

  • High = 22,150
  • Low = 21,900
  • Close = 22,000

Step 1: Calculate PP
PP = (22150 + 21900 + 22000) / 3 = 22,016.67

Step 2: Calculate R1 and S1

  • R1 = (2 × 22016.67) – 21900 = 22,133
  • S1 = (2 × 22016.67) – 22150 = 21,883

Step 3: Calculate R2 and S2

  • R2 = 22016.67 + (22150 – 21900) = 22,266.67
  • S2 = 22016.67 – (22150 – 21900) = 21,766.67

👉 Now, as a trader, you wake up knowing these levels:

  • Above 22,016 → bullish bias.
  • Below 22,016 → bearish bias.
  • Watch R1 (22,133) and S1 (21,883) as the day’s battlegrounds.

This is how old traders prepared their game plan even before the first tick.

How Traders Actually Use Pivots

Here’s where the fun begins. There are three main styles of trading pivots:

1. Bounce Trades

The simplest approach.

  • Price falls to S1 → finds buying interest → bounces back up.
  • Price rises to R1 → sellers step in → reversal downwards.

This is like testing the walls of a room. Price “knocks” at support or resistance, and if the wall is strong, it bounces back.

2. Breakout Trades

  • When price smashes through R1 with heavy volume, it often continues toward R2.
  • Similarly, if it breaks below S1, it can slide toward S2.

Momentum traders love this because once a pivot breaks, trapped traders fuel the move further.

3. Fakeouts (My Favorite 😉)

This is where pivots get really interesting.

Imagine price pushes just above R1. Traders jump in long, expecting a breakout. Suddenly, a big red candle appears, and the price falls sharply back below R1.

That’s a fakeout.
Smart money often uses pivots to trap retail traders. If you learn to recognize these traps, you’ll start seeing opportunities others miss.

Common Mistakes Beginners Make 🚫

  1. Blind Trading Every Level
    Not every touch of S1 or R1 leads to a trade. Without confirmation, it’s just guessing.
  2. Ignoring Timeframes
    Daily pivots are useful for intraday. But for swing trading, weekly/monthly pivots carry more weight.
  3. Overcrowding Charts
    Adding 10 indicators along with pivots → confusion, not clarity.

Closing Story

Back to our floor trader…
He had no fancy software. Just pivots scribbled on a slip of paper. Yet he pulled consistent profits because he respected those levels.

Today, you have TradingView that plots pivots in a second. But don’t let that make you lazy. The real power comes from understanding the logic behind pivots and combining them with your own edge.

Remember:
Pivots give you the map. Your discipline drives the car.

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