Forex Pivot Trading
Forex pivot trading is a strategy that works well because of the high level of liquidity that is available in the Forex market. Pivot points were originally used in the stock market and other financial markets, and eventually made their way into the Forex market. Here are the basics of pivot points and why they are important to you as a trader.
What Are Pivot Points?
Pivot points are a type of indicator that can be beneficial when engaging in Forex technical analysis. They give you support and resistance levels as well as help you gauge the amount of risk that you are taking on with each trade.
To calculate a pivot point, you take the previous period's high and add it to the previous period's low and the previous period's close. Then divide that number by three. Then to calculate that resistance level, multiply the pivot point by two and subtract the previous period's low. To calculate a support level, multiply the pivot point by two and subtract the previous period's high.
When calculating the second resistance level, you take the pivot point and subtract the first support level. Then add that to the first resistance level. To calculate the second support level, take the pivot point and subtract the first resistance level minus the first support level. This is a bit confusing, but it gives you five points of reference on the chart.
Of course, if you don't like doing always calculations, you can simply go to your Forex trading platform and add them to your chart. The software will do all of these calculations for you and put them on your chart. Maybe a little easier, huh?
How You Use Them?
Using this information is all about supporting resistance. The support and resistance levels act as..well, support and resistance. This means that when the price starts to break through one of these levels, it will continue to move in that direction, in most cases. If the price does not break through the level, then it has a good probability of bouncing back in the opposite direction.
Using in Conjunction
Many traders who use pivot points regularly use them in conjunction with other indicators. For example, many traders use them in conjunction with the RSI oscillator. By combining the information that the other indicators provide with the information that the pivot points give you, you can make smarter decisions in your Forex trading. Just know that currency pairs sometimes have a mind of their own and do not adhere to the patterns that you think they will.
Return From Forex Pivot Trading to Forex Charts
Return From Forex Pivot Trading to Forex Trading