pivot point
Pivot Point is a price level traders calculate to guess where a stock or currency might turn around or break through during the trading day.
In plain English
When a danfo driver at Ojuelegba sees traffic building at the junction, he does not wait to be stuck before deciding whether to swing left through the back roads or push on straight ahead. He has a mental marker, a point where he says, past this, I change my plan. Now think of someone standing at the edge of a swimming pool, no marker at all, just jumping in and hoping the water is not too cold. That is the difference between trading with a pivot point and trading on vibes.
A pivot point is a price level that traders work out before the market opens, using the previous day's high, low and closing price. It becomes the line in the sand. If the price is trading above that pivot, the mood is generally bullish and traders lean towards buying. If it slips below, the mood turns bearish and traders lean towards selling or staying out.
Consider someone in Lagos trading the shares of a bank on the Nigerian Exchange, say Zenith Bank. If yesterday's pivot works out to ₦45.00 and this morning the price opens at ₦46.20, a trader watching that pivot sees strength and may hold their position a little longer, expecting the price to test higher levels before any pullback.
A trader in London doing the same thing with GBP/USD on a spread betting app is not guessing either. They calculate the pivot from the previous day's range, then set their eyes on levels above and below it, called resistance and support, to know where to take profit or cut losses.
For someone abroad sending money home, pivot points do not decide how much lands in a Nigerian account, but they matter to the trader managing the ₦ to £ or $ conversion on the other side, since a well timed trade can mean a slightly better rate before the transfer goes through.
A trader calculates Monday's pivot point for MTN Nigeria shares at ₦210. On Tuesday, the price opens at ₦215 and stays above ₦210 all morning, so the trader treats ₦210 as their support level and holds their buy position rather than selling early.
Questions people ask
Do I need special software to calculate a pivot point?
No. The formula is simple, using the previous day's high, low and close, and most trading platforms and apps calculate it for you automatically, so you rarely need to do the maths by hand.
Is a pivot point the same as support and resistance?
Not quite. The pivot point is the main reference line, while support and resistance are extra levels calculated above and below it, marking where the price might struggle to move past.
Can pivot points be used for Nigerian stocks or only foreign markets?
They work for any market with regular trading data, including stocks on the Nigerian Exchange, though they tend to be more reliable in markets with heavier daily trading volume, like major currency pairs or large cap stocks.
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