Fibonacci pivot points are useful in any trading sector including forex (foreign exchange) and the stock market. In trading technical analysis, they represent prices that are likely support and resistance levels on trading charts. Support levels are where the price is calculated to have a higher possibility than at other levels to stop falling and turn back upward. Conversely, resistance levels are where the price has an increased likelihood of turning back downward from a previous rise. You can work out the Fibonacci pivot points for any trading chart time period depending on whether you are a day trader or prefer to place trades lasting for days, weeks or months. They are a leading indicator that makes them especially helpful as most lag, representing data already created.
Things You'll Need
- Trading chart
Calculate the main pivot point by adding the previous day's highest price, lowest price and closing price together. This example will look at calculating daily Fibonacci pivot points, but the process is the same for any time period. Divide your total by 3, finding the average price from the day before. This is now your main pivot point (PP) which you will use to work out the Fibonacci support and resistance pivot points.
Subtract that day's lowest price from its highest price to find the previous day's price range.
Multiply the price range by 0.382, 0.618 and 1.000. This is the same as finding 38.2, 61.8 and 100 percent of the price range. These figures will be used to find the three Fibonacci levels that most traders are interested in.
Add the three figures you have just worked out to the main pivot point to find three levels of resistance. Subtract them from the main pivot point to find three support levels.