Pivot Points in Forex Trading:
Pivot points calculation is yet another and quite popular trading tool in technical analysis in Forex (currency) trading.
What Do Pivot Point Mean in Forex Trading?
Pivot point is the price at which the price movement of a currency pair is expected to turn into different direction. For example if the currency pair prices are moving up, the pivot point price indicate that once the price reaches that level the currency pair may start falling downwards and vice versa.
What Pivot Point tells us in Forex (currency) Trading?
a) At what price the currency pair may change the direction of movement
b) Possible resistance and support levels for the prices of the currency pair.
c) Trend identification by comparing the current prices with respect to the current day’s pivot point and also the previous days’ pivot points.
Forex Pivot Point - Support and resistance levels:
When we calculate pivot points we get 3 types of values as follows:
1) Pivot Point price: The price at which the currency pair’s price movement is expected to change direction.
2) Resistance levels: We get 3 resistance levels with the pivot point price. These levels would indicate the price levels at which a resistance is expected if the price is climbs to these these levels, the price is expected to start moving down again.
3) Support levels: Similar to resistance levels we get 3 support level prices which indicate the levels of support to the downward price movement i.e. if the currency pair is moving downwards at these levels it’s expected that the price may start climbing up.
Forex pivot Points to check if its uptrend or downtrend:
In Forex trading we can use pivot point calculations for finding the support and resistance levels. We can also use Pivot Points to know a possible turning point of the direction of movement for a trading session or a trading day. But pivot points can also be used to estimate if the currency pair is having an uptrend or a downtrend.
Let’s use the following abbreviations for the following explanation:
LOPS1: low of the previous session (or day in day trading).
HOPS1: high of the previous session (or day in day trading).
LOPS2: low of the session before the previous session (or day in day trading)..
HOPS2: high of the session before the previous session (or day in day trading)..
Now let’s say that the currency pair is trading above the Pivot Point, then the market can be considered in a possible uptrend. If the currency pair is trading above HOPS1 or HOPS2, then the pair is in an uptrend, and we can take long (buy) positions. If the currency pair is trading below the Pivot Point then it is considered in a possible downtrend. And if the currency pair is trading below LOPS1 or LOPS2, then the pair is in a downtrend, and we should only consider short-selling trades.
How Forex Pivot Points are calculated:
For trading Forex we need the High, Low and Closing price of the currency pair for the period for which we need to calculate the Pivot Point. Suppose you wish to calculate daily pivot points for currencyday trading then you need to take the previous day's high, low and closing prices. Different kind of Pivot Points have different formulas and the pivot points can be calculated using those. You can see the formulas and also calculate the pivot points your self using our online pivot point calculators.
What time the Forex Pivot Points should be calculated:
Since, unlike stock market, the Forex trading market is a 24-hour market there is always a debate for deciding at what time we should take the open, close, high and low from each trading day. From a common point of view, the times that produce more accurate predictions is taking the open at 00:00 GMT and the close at 23:59 GMT.
Types of Pivot Points:
1) Standard Pivot Point
2) Fibonacci Pivot Point
3) Woodie Pivot Point
4) Camarilla Pivot Point
Online Forex Pivot Point Calculators (Calculate Pivot Points Yourself):
1) Standard Pivot Points Calculator
2) Fibonacci Pivot Points Calculator
3) Woodie Pivot Points Calculator
4) Camarilla Pivot Points Calculator
Notes:
1) As is true with any technical analysis indicator, we suggest not to use Pivot Points in isolation for any Forex Trading decision and to use the pivot points in combination with other technical analysis indicators.
2) We have discussed Pivot Points for Forex Trading but pivot point support and resistance levels are applicable and used as a technical analysis indicator/tool in stocks and other commodity markets also.
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