Pivot points are technical indicators used to determine potential support and resistance levels. They are calculated from the previous period's high, low, and close prices.

The classic pivot point formula calculates the central pivot as: PP = (High + Low + Close) / 3. Support and resistance levels are then derived from this central point.

R1 and S1 are the first resistance and support levels: R1 = 2×PP - Low, S1 = 2×PP - High. R2 and S2 extend further: R2 = PP + (High - Low), S2 = PP - (High - Low).

Floor traders have used pivot points for decades. They work particularly well in forex because the market trends strongly and respects technical levels.

Many traders combine pivot points with other indicators like moving averages and RSI to confirm trade entries and exits at these levels.