Forex Pivot Point: What It Is And What It Does

Posted by Nick Niesen on October 29th, 2010

Forex Pivot points are used by Forex investors and market traders to figure out the entrance and exit points for the Forex trading day. The trading activity for the previous day determines where these pivot points are set. This technique is generally used after you have determined the direction that the trend is going. Pivot points are used alongside some of the other technical analysis tools including MACD crossover, candlestick patterns, and moving average crossovers, to try and maximize investment and minimize loss by predicting the fluctuations of the market. Forex uses pivot points extremely well because of the fact that the majority of the currency pairs generally vary between these levels.

Pivot points are used by Forex market investors and traders to identify any important support and resistance levels. The pivot point and the associated support and resistance levels are specific areas at which the price movement direction can possibly change. Short term traders are the ones who find pivot points the most useful because they are looking to take advantage of any small price variations. However, both range bound traders and breakout traders also use pivot points in the Forex market. Reversal points are identified by pivot points to benefit range bound traders, and this helps them to minimize their risks. Pivot points are used by breakout traders to recognize any key levels which may need to be broken so the move will be classified as a real deal breakout.

To calculate the pivot points and the associated support and resistance levels, traders use the last open, high, low, and close, from the last trading session. The New York closing time of four in the afternoon is used as the close of the previous trading day by most Forex traders, because the Forex market is a twenty four hour a day market. The specific calculation for the pivot point is Pivot Point(PP) = (High + Low + Close) / 3.

Pivot points are an excellent technical analysis tool for Forex market traders and investors because of their simplicity. These pivot points, along with the associated support and resistance levels, are calculated by traders by the previous trading day's session specifics. The formula to calculate pivot points is simple and easy to use, and by utilizing pivot points along with other technical analysis tools, including moving average crossovers and candlestick patters, Forex market traders can predict specific areas of price movement in the market. This allows traders to minimize their risk while maximizing their profits.

Copyright © 2007 Joel Teo. All rights reserved.