Technical Analysis – Revisiting Pivot Point Analysis

Application to the S&P/ASX200 (Aussie 200) Index - from 20/11/2006

Basics

To calculate the pivot points of the XJO for Monday 20th November 2006. the trader needs to  know the high, low and closing price from Friday the 17th November 2006. Please click here to review the Pivot Point basics. The calculations are:

1. Pivot Point = (H+ L+ C)/3
2. 1st Support Line = (2*PP) – H
3. 1st Resistance Line = (2*PP) -L
4. 2nd Support Line = PP – (H-L)
5. 2nd Resistance line = PP + (H-L)

• Where H = previous days high
• L = previous days low
• C = previous days close
• PP = Pivot Point

The relevant information needed are Friday's high (5426), Low (5356.9) and the close (5419.70).

Example

The calculation of the relevant lines are as follows:

•  Pivot Point = (5426+ 5356.9+ 5419.70)/3 = 5400.87
•  1st Support Line = (2*5400.87) – 5426 = 5375.74
•  1st Resistance Line = (2*5400.87) - 5356.9 = 5444.84
•  2nd Support Line = 5400.87 – (5426-5356.9) = 5331.77
•  2nd Resistance line = 5400.87 + (5426-5356.9) = 5469.97

Lets see the action on the chart to see if this analysis can be useful. Below is the intraday 5 minute chart of the XJO for today (20/11/06).

You will notice in the above chart that both the 1st and 2nd Resistance Line are not included in this chart, the reason is the XJO didn't trade in this area today. The three lines are of the Pivot Point and the 1st and 2nd Support lines.

• The XJO opened at 5419.7 (yellow circle) then fell away to the Pivot Point Line by 10:30am. In the aqua rectangular area notice that once below this line, the Pivot Point line acted as resistance (purple circles), many traders would have found this as a sign to go short.
• The second time the XJO couldn't pass above the Pivot Point line it then went quickly to the 1st Support line (grey area). In this area the XJO tried to find support before again failed to and then dropping quickly to the 2nd Support Line.
• Here the XJO found support (green circle) before falling through this line on the match pricing.

It is rather interesting how Pivot Point analysis can sometimes show where there is likely to be support and resistance. For many short-term speculative traders, these "reference" points provide entry and exit signals for index trading and for individual shares in general.

Given their popularity amongst many traders, these support and resistance lines will provide trading opportunities for many.