Pivot (Stock Price) – Definition

Cite this article as:"Pivot (Stock Price) – Definition," in The Business Professor, updated December 2, 2019, last accessed October 25, 2020, https://thebusinessprofessor.com/lesson/pivot-stock-price-definition/.

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Pivot (Stock Price Level) Definition

A pivot refers to an important price level established when a stock doesn’t break through it to the up or downside or the price breaks out past the pivot level. Most times, an instant increase in volume goes with a move through the price level of the pivot. As a technical indicator, the pivot price is synonymous to a support or resistance level. In a situation where the price is exceeded, then a breakout is anticipated to happen.

A Little More on What is the Pivot for a Stock’s Price

A methodology of price determination is calculating a pivot point. Floor traders originally utilized a pivot point to get a significant stock price level, though an investor using any timeframe might now use a pivot point. After examining data from the stock’s historical price, a pivot point is utilized as a base. This base is utilized for more calculations to set many resistance and support levels. These are all utilized to trade throughout the day. Once set, a pivot point isn’t changed throughout the day.

Information Used Based on Chart Interval

Pivot point using 15-minute charts or less use historical data from the former periods’ low, high, and close to create either leading or predictive indicators. A pivot point using charts higher than 15 minutes but lesser than 60 minutes use data based on the information of the previous week. Any pivot point that’s calculated with charts making use of daily information uses details from the past month.

Support and Resistance

A pivot point is a major metric for knowing significant price levels at which a stock moves rapidly. A decrease or increase from this point is called resistance or support. These points are dependent on previous price action and are defined at levels where the market picks a direction.

Pivot Levels

Many potential trading ranges might be calculated with the use of a pivot point. These ranges are referred to as pivot levels. A standard investor uses two levels maximum, with each level having a support level and also a resistance level. Thus, besides a pivot point, the two levels have two resistance levels, as well as, two support levels. It is not rare for a third level to be utilized, but it’s rare for a stock to get to this level.

Calculations

A trader usually calculates a pivot point by adding the past day’s low, high, and close prices, and then dividing by three. The first support level is calculated by multiplying the pivot point by two and then subtracting the previous day’s high. Also, the first resistance level is calculated by doubling the pivot point and then deducting the previous day’s low. The calculation of the second level involves deducting the previous day’s high, as well as, the previous day’s low. The second level’s calculation involves subtracting the high of the previous day and the low of the previous day. The second support level deducts this calculation from the pivot point, while the second level of resistance adds this calculation to the pivot point.

References for “Pivot

https://en.wikipedia.org/wiki/Pivot_point_(technical_analysis)

https://www.investopedia.com › Trading › Trading Strategy

https://financial-dictionary.thefreedictionary.com/Pivot

https://corporatefinanceinstitute.com › Resources › Excel Resources › Study

lexicon.ft.com/Term?term=pivot

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