Lesson 3: Three Common Ways to Calculate Pivot Points

In the previous lesson, you learned the importance of pivot points to indicate possible market movement. Let's review,  

1. Knowing the pivot points will tell you the potential support and resistance for the trading day. 
2. Pivot points can also help range-bound traders to identify possible reversal points. 
3. It can also assist breakout traders in recognizing the key levels that might start breakout trends (bearish and bullish) 

In this lesson, you'll explore more options when calculating the coming day's pivot point. Specifically, you'll deal with the popular Woodie pivot, Camarilla, and Fibonacci pivot points.

Lesson Highlights

• There are several ways to calculate the pivot points to foresee the market's upcoming support and resistance levels. The most popular computations are the Woodie pivot point, Camarilla pivot point, and Fibonacci pivot point.
• The Woodie pivot point emphasizes the market’s closing price from the prior day.
• The Camarilla pivot point focuses on the previous day’s range and closing price.
• The Fibonacci pivot point uses the Fibonacci ratios, specifically 0.382 (38.2%), 0.618 (61.8%), and 1.000 (100%).

Woodie Pivot Point 

The Woodie pivot point is one of the most popular ways to calculate the pivot points for the coming trading day. This method is at levels with the standard calculation in terms of popularity for day and intraday traders.  

But unlike the standard method, the Woodie Pivot Point emphasizes the asset's closing price from the prior day. 

When you trade with Woodie pivot point, you believe that the emotion of the market drives the assets' high and low prices. Meanwhile, the open and close prices represent the market sentiment or mood.  

Woodie Pivot Point Calculation 

Calculating pivot points using the Woodie equation uses multiple key levels or data, including multiple support and resistance levels and the pivot point itself.

Camarilla Pivot Point 

Contrary to the Woodie pivot point, Camarilla's equitation highlights the importance of the previous day's range and closing price. With these key data, calculating the camarilla pivot point gives the potential support and resistance level for the coming trading day.  

Have you noticed how the key data is relatively similar to the standard pivot point calculation?  

That's because the Camarilla equation is developed to enhance the accuracy of the classic pivot point calculation.  

When you trade using the Camarilla Pivot Point, you believe the market price reverts to its mean value until it doesn't.   

Camarilla Pivot Point Calculation 

As mentioned above, the Camarilla equation is a modified version of the standard pivot point calculation. The only difference is that this equation fully utilizes the Fibonacci numbers to generate potential intraday support and resistance levels. 

Fibonacci Pivot Point 

Fibonacci pivot point calculation slightly differs from the standard calculation. Here, you take advantage of the Fibonacci retracement levels, mainly based on the Fibonacci sequence and ratios.  

Fibonacci Pivot Points provide an alternative method of calculating support and resistance levels that incorporates Fibonacci ratios.  

This pivot type became famous for technical traders because Fibonacci ratios are widely used tools for market analysis. 

Fibonacci Pivot Point Calculation

As mentioned, you use the Fibonacci retracement levels to calculate the pivot and identify potential support and resistance levels. It's derived from the popular Fibonacci sequence (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, etc.) 

However, the main Fibonacci ratios used in Fibonacci Pivot Points are 0.382 (38.2%), 0.618 (61.8%), and 1.000 (100%)

Throughout the module, you've learned the importance of pivot points and their support and resistance levels when you trade with technical analysis.

In the next lesson, you'll dive deeper into the concept of support and resistance to understand its crucial role in technical traders' games.