Every day, there is a lifecycle to a stock. It starts the day with its opening price. This is the price it ended at the previous day. From there, the stock will go through ups and downs but each day it will hit its high value and low value. The interesting thing is that the high value can come early in the day, while the low value can come in afternoon, or vice versa. By no means is the low or high value the close value of the stock. The close price is the price that the stock ends at for the day, which as we said is the open value of the stock for the next day.
For those who invest in the stock market, the trick is determining when a stock will fall, by how much, and how high a stock will go and by how much. There is no way to predict what a stock will do on a given day with 100 percent certainty. Even if you pay attention to the stock market news on TV, you are not getting ahead of the game. The reason is that the stock market is so efficient that any information relating to the stock is already reflected in the price at the point the information is released. So, how can you get a jump on something that pretty much has a life of its own and cannot be predicted?
You get a jump on it with pivot points. Pivot points are tools that many stock market traders use so that they can get a jump on a stock and know, with some idea, where the stock will hit its highest and its lowest for the day. There is no complex formula for doing this, you can determine the pivot point with some simple elementary mathematics.
First, you take the low, high and close value of the stock and add those values together. Then, you divide that result by three and you have your pivot point. If the high price is 7.81, the low price is 7.14 and the close price is 7.67, then the pivot point value will be (7.81 + 7.14 + 7.67)/3, which equals 7.54. Now, we just need to use that value to determine the support level (low price) and the resistance level (high price). These are the levels that the stock will hit before changing direction and moving up or down. To find the resistance level, we take the pivot point value and multiply by two, then subtract the low price. To determine the support level, we do the same but subtract by the high price. With our pivot point of 7.54, we would calculate the resistance level as 7.54 x 2 – 7.14, which equals 7.94, and the support level as 7.54 x 2 – 7.81 = 7.27. Now we know the approximate value that the stock will have for it’s high and low prices.