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Support, Pivot & Resistance Levels
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The Support, Pivot & Resistance levels, for decades, have been used by floor traders to gauge the intensity of intraday price action. Every day, after market closes & settlement prices are finalized, these levels are computed for the following trading day. The inputs are High, Low & Close. The formulas apply to any market.
Resistance Levels (R1, R2 & R3) denote three increasing measure of market overbought conditions. Each day, a number of traders begin their trading day with plans to fade, or sell into, these levels. The Resistance lines are usually drawn in RED.
Pivot is synonymous with 'fair value'. This is the neutral price zone or expected value. Pivot line is drawn in YELLOW.
In like fashion, Support (S1, S2 & S3) denotes three increasing measure of oversold conditions. Similarly, each day, some traders' plans include fading, or buying at, these levels. The Support lines are usually drawn in GREEN.
For additional readings, see William Greenspan's articles in August 1994 & July 1996 issues of Technical Analysis of Stocks & Commodities.
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