How to Use Fibonacci to Calculate Pivot Points For Trading Futures, Stocks and Forex
There are many different ways to calculate support and resistance points in the financial markets (stocks, futures, ETF’s, etc.) The simplest way is to use previous highs or lows as support and resistance. Day-traders often use what is known as the “floor trade pivot points”.
This is a very popular and easy to calculate method of gauging support and resistance levels. It is good to know the numbers that other traders are looking at, but it is also beneficial to have other pivot points that aren’t used by so many people. The following method of calculating pivot points is not widely known. It uses the values of the previous trading session, and, in addition, utilizes the power of Fibonacci numbers. This can also be used on other time frames, such as weekly or monthly. You can calculate these, for example, on a weekly and daily basis, and look for areas where the daily and weekly numbers match up for a more solid level.
The first step is to calculate yesterday’s Range by subtracting the low from the high.
Range=(yesterday’s high-yesterday’s low)
Next, you take the range and multiply it by several Fibonacci ratios.
To calculate the resistance levels you add RangeExt1, 2 and 3 to the close:
FibRes1=Yesterday’s Close+Range Ext1
FibRes2=Yesterday’s Close+Range Ext2
FibRes3=Yesterday’s Close+Range Ext3
To calculate the support levels you subtract RangeExt1, 2 and 3 from the close:
FibSup1=Yesterday’s Close-Range Ext1
FibSup2=Yesterday’s Close-Range Ext2
FibSup3=Yesterday’s Close-Range Ext3