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:
Pivot Points map where BUYERS and SELLERS previously agreed on value.
And humans (and algos) are astonishingly predictable about returning to prior consensus levels.That’s the whole thing.
Let’s unpack it properly.
1. What a Pivot Point Actually Is
Wall Street defines the Pivot as:
P = (High + Low + Close) / 3It is literally the average sentiment of the prior period.
If you think in PSW language:
The Pivot is the Fair Value Line from yesterday’s battle.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:
Markets are crowds, crowds seek equilibrium, and equilibrium tends to recur at mathematically stable levels.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:
Markets move in predictable, fractal ranges based on prior movement.
They overshoot by a predictable % (strong and weak bounces) before returning to a stable range.The 5% Rule defines macro behavior over days/weeks.
Pivot Points define the micro behavior inside those same ranges.
This is the key insight:
Pivot Points subdivide yesterday’s 5% Rule box into intraday battlegrounds.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:
Pivot Points turn the 5% Rule from a map into a working GPS.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:
Buy support (S1/S2).
Sell resistance (R1/R2).
Don’t be a hero at the Pivot — let it prove itself first.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.
