How Pivot Points Work — And Why They Fit Hand-in-Glove With Our 5% Rule™

Let’s start by clearing the smoke:

Pivot Points are not magic.
 They are not predictive.
 They are not “telling the future.”

What they are — and why they work — is astonishingly simple:

That’s the whole thing.

Let’s unpack it properly.

1. What a Pivot Point Actually Is

Wall Street defines the Pivot as:

It is literally the average sentiment of the prior period.

If you think in PSW language:

Everything else — the support/resistance bands — are just logical derivatives:

R1 = 2P – Low
 S1 = 2P – High
 R2 = P + (High – Low)
 S2 = P – (High – Low)

These levels define:

• Where buyers defended value yesterday
• Where sellers defended value yesterday
• And how wide the battlefield was (the range)

That’s it.

No goat entrails required.

2. Why Pivot Points Work in the Real World

Pivot Points work for the same reason that the 5% Rule™ works:

Institutions, quants, algos — they're all trained to react to known levels of probability-rich behavior.

Why?

Because if you’re running billions in capital, you don’t “wing it.”
You trade around reliable historical behaviors with enormous liquidity.

Pivot Points give you exactly that:

• Obvious take-profit zones
• Obvious fade zones
• Obvious scalp zones
• Obvious breakout/breakdown levels

It’s not spiritual — it’s statistical gravity.

3. Why They Fit PSW’s 5% Rule So Perfectly

Our 5% Rule states:

The 5% Rule defines macro behavior over days/weeks.

Pivot Points define the micro behavior inside those same ranges.

This is the key insight:

Both tools assume the same human truth:

• Markets don’t instantly reprice
• Supply/demand equilibria persist
• Participants cluster trades around “comfort levels”
• Algos enforce these levels with high-frequency precision

So the Pivot sits right at the centroid of yesterday’s trading — the fulcrum of sentiment — and acts as the natural gravity well.

The R1/S1 and R2/S2 levels line up shockingly well with:

• Weak bounce / weak retrace
• Strong bounce / strong retrace
• Expected overshoots

Which is why you almost always see intraday reversals at these levels.

Not because the market gods ordained them…

…but because buyers and sellers feel the same way today as they did yesterday — unless something truly new enters the picture.

4. Why Pivot Points Are the Best Short-Term Indicator for Non-TA People

Pivot Points have three massive advantages over all the other chart debris:

(A) They are static for the day

If you calculate them at 9:29 AM, they do not change all session.

That alone makes them far more usable than moving averages or stochastic spaghetti.

(B) They are derived from price reality, not arbitrary smoothing

They come from objective highs, lows, and closes — not “let’s average the last 14 candles because some guy in 1978 said so.”

(C) They show where everyone ELSE is watching

The best indicator in trading isn’t what you think.
It’s what everyone else is going to act on.

Pivot Points are baked into:

• Quant models
• Execution algos
• Institutional hedge programs
• Market-maker positioning
• ETF arbitrage logic

They’re literally part of the plumbing.

5. Why We Use Them

Because:

• They tell us where to expect resistance.
• They tell us where to expect support.
• They tell us where to sell premium.
• They tell us where risk/reward flips from good to stupid.
• And they mesh perfectly with our 5% Rule structure.

In PSW language:

You already knew where the road was —
 now you know where all the potholes, gas stations, and police traps are.

6. The Takeaway Members MUST Absorb

Pivot Points are NOT “predictions.”
 They are memory.

Markets have memories, and memories have gravity.

A Pivot Point is simply:

• Yesterday’s fair value
• With two bands above
• And two bands below
• That define the path of least resistance

If you understand the 5% Rule, Pivot Points are just the intraday version of the same behavioral math.

Combine them, and you have:

• Macro equilibrium
• Micro equilibrium
• And extremely high-probability reaction zones

Which is why you see us use them over and over on intraday Futures plays:

It’s mechanical.
 It’s logical.
 And it works because humans and algos repeat the same patterns every damn day.

If you'd like, Phil, I can now create:

• A PSW Cheat Sheet (“How to Trade with Pivot Points & the 5% Rule”)
• A visual diagram Members can reference
• Or a combined Futures-trading lesson for the book section on short-term tactics.

Just say the word.