Pivot points are employed by forex traders to locate potential support and resistance areas. They are levels where price interaction may cause a reaction. In addition, Pivot points help traders gauge the bias and sentiment within the market over a given interval.
- Woodie’s Pivot Points:
Woodie’s Pivot Points are calculated as per below:
R2 = PP + (High – Low)
R1 = (2 X PP) – Low
PP = (High + Low) + (2 x Closing Price) / 4
S1 = (2 X PP) – High
S2 = PP – (High + Low)
One of the first differences is that the Woodie’s formula puts more weight on the price . Notice that the Pivot Point (PP) calculation involves multiplying the price by 2, then adding the High and Low. From this you have to divide by 4 to urge the PP level. This might sound a touch confusing initially , but essentially it works almost like an Exponential Moving Average, where the latter data is weighted more heavily than the sooner data.
- Camarilla Pivot Points:
Camarilla Pivot Points were invented by Nick Scott within the late 1980’s. They are similar in concept to Woodie’s therein they use the prior day’s price and range to compute the amount .
But rather than 2 Resistance levels, and a couple of Support levels, the Camarilla equation involves 4 resistance levels and 4 support levels. Add to that the Pivot Point level, and there are a complete of 9 levels plotted for Camarilla. Also, an interesting part of the Camarilla equation is that a special multiplier is included in the formula.
Let’s take a glance at the Camarilla Pivot point formula:
R4 = Closing + ((High -Low) x 1.5000)
R3 = Closing + ((High -Low) x 1.2500)
R2 = Closing + ((High -Low) x 1.1666)
R1 = Closing + ((High -Low x 1.0833)
PP = (High + Low + Closing) / 3
S1 = Closing – ((High -Low) x 1.0833)
S2 = Closing – ((High -Low) x 1.1666)
S3 = Closing – ((High -Low) x 1.2500)
S4 = Closing – ((High-Low) x 1.5000)
We have a total of 4 Resistance levels, and a total of 4 Support Levels. Many intraday traders utilize the Camarilla levels to fade price moves when then reach the R3 or S3 level.
- Fibonacci Pivot Points:
Fibonacci studies such as retracements, extensions, and projections are quite popular in the Forex market. The primary Fibonacci levels that traders watch most closely are the 38.2% and 61.8% retracement levels.
Here is that the formula for calculating Fibonacci Pivot Points:
Resistance 1 = Pivot + (.382 * (High – Low))
Resistance 2 = Pivot + (.618 * (High – Low))
Resistance 3 = Pivot + (1 * (High – Low))
Pivot Point = (High + Low + Close) / 3
Support 3 = Pivot – (1 * (High – Low))
Support 2 = Pivot – (.618 * (High – Low))
Support 1 = Pivot – (.382 * (High – Low))
So, for Fibonacci pivot levels, we start by computing the pivot point as we would the standard pivot point, using H+L+C / 3. Then we might multiply the prior days’ range with the required Fibonacci ratio. Finally, you’d either add the result to the pivot point to calculate the Resistance levels, and you’d subtract the result from the pivot point to compute the Support levels.