Pivot Point Trading are used today by Forex Traders and are calculated
on the previous days move and trades are entered when the market hits a
support or resistance line of the pivot point providing your OB/OS
indicator is in agreement. All the support and resist lines are put in
place 1st thing in the morning. then you wait for the market to hit
those entry Points.![[Image]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_sUFPFSIEzKblbctwYq9wRQdaWkeSpJmaZEynPDNvd_A-RqCeB8nhs630f2j1t43nc638BwY2q56bShSZz0D1AA8ULuL_wEJ8hW7IE2XSTVtz0L9nuEzZ_zLAmfs6Cu9dSvAW9i78oxTLGl0Klc80K1wkq71TkuoBJ57vCcOA=s0-d)
Contrary to what some might believe, trading Forex with Pivot Points are
probably the most popular method used in trading the financial markets
today. Long before the invention of computers this was the method used
by the traders in the pits to determine hidden support and resistance
levels.
The Pivot Point is still used by experienced floor traders and technical
analysts alike. The major advantage now is that we now have computers
and can calculate our points well in advance. Many charting packages can
calculate them for you automatically, thus enhancing the use of Pivot
Points.
Whilst there is a lot more to Pivot Point Trading in Forex Trading than
we will be mentioned in this article, the purpose of this exercise is to
introduce you to the concept of trading Forex with Pivot Points.
Remember the market can only go up, down, or sideways. It is like an
elastic band that has been stretched, sooner or later it will rebound to
an equilibrium point where the market is in balance, and then stretch
the opposite way only to rebound and reach another balance point. Then
some fundamental announcement or happening will drive the market in a
new direction and so on day after day. Pivot Points can aid us in
determining how far that elastic can stretch before it rebounds.
Whilst there are many time frames that can be used for calculating
Pivots, for the purpose of this exercise lets concentrate on the daily
time frame (i.e.: 24hr) Pivot Points are calculated using the previous
days, Open, High, Low, and Close figures. There are many Pivot Point
calculators available on the web so you don't have to waste your time
doing the calculations manually. Also bear in mind the longer the time
frame you are using the longer you must be prepared to stay in the
market or wait for the next entry point.
Pivot points unlike many other indicators are an objective tool. Because
they are mathematically calculated, there can only be one answer for a
specific time period.
Many subjective indicators like Fibonacci retracements, (and I am a
great fib fan) Elliot waves etc. can have different people trading in
different directions at the same time due to individual interpretation..
The PP's can help you to predict the next day's highs and lows in
advance. PP's can give you anything from 4 to 8 support and resistance
levels. However you still have to be able to identify the trend to be a
successful PP trader. Pivot Points also work best in a trending market.
Entry and exit points
Pivot Points can give you exact entry and exit points, rather than enter
markets that are in the middle of a run, or about to turn the other
way. Here is where we use other indicators to assist on the entry or
exit. If the market stalls at a Pivot Point level, and you have an
overbought or oversold indicator that will be a good time to get in or
out. Or if a Fibonacci level coincides with a Pivot Point level it can
make a strong case to enter or exit a trade. If the market is bullish
and your favourite indicator is not near overbought, when it hits the
first resistance level then you probably have a good case to stay in the
market and make your profit target the next Pivot Point resistance
line. The breakout above the 1st resistance level can then become your
new stop or stop reverse.
Obviously the reverse is true of the support level as well. By combining
the Pivot Points with your favourite indicator you can develop your own
trading system that no one else uses.
Trading for the day will probably remain between the 1st support (S1)
and resistance (R1) levels as the floor traders make their markets. Once
one of these levels is penetrated other traders will be attracted to
the market, and should the second level be breached, the longer term
traders are attracted to the market.
Knowledge of where the floor traders are expecting support or resistance
can be a distinct advantage especially when there is no outside
influence in the market. Provided no significant market news has
occurred between yesterdays close and today's opening, the local floor
traders and market makers tend to move the market between the Pivot
Point (P) and the first support line (S1) and resistance (R1) If one of
these levels is breached then expect the market to test the next levels
(S2) and ( S3) or (R2) and (R3)
Whilst there are many other aspects to Pivot Point trading why not try
this simple method first and see if you can develop your own strategy by
using your existing trading technique's in conjunction with the Pivot
Points.
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