Pivot points are technical analysis indicators that reflect upward and downward trends, as well as predicting when a price can be expected to change direction. Pivot points are determined by accounting the averages of an asset’s high, low, opening and closing prices, as well as support and resistance levels for the previous trading period.
While pivot points can be used to help traders make longer-term decisions (weekly, even monthly), most commonly they are used for intraday trading to determine how a market price is most likely to move in the coming hours for short-term trades. If the pivot point is lower than the current price of an asset, then it is a price support, and it is seen as a resistance if the asset is trading lower than the pivot point.
Pivot points are especially useful in enabling traders to recognize the best times to open and close positions on assets, as well as whether the market is bearish or bullish at any given time.
Two things about pivot points are very important for traders to bear in mind. First, a pivot point is only one of several technical analysis indicators, and is most effective when used in conjunction with other technical and fundamental analysis tools. Second, like all analysis indicators, pivot points are predictive, which means that the market will not always behave in the way that the indicators, such as pivot points, could lead us to believe they will.