What are pivot points?

What are pivot points?



Welcome to the Advanced technical analysis course. In these lessons, we're going to cover some additional technical indicators, tools and patterns you can use to find opportunities. Let’s start with a useful way of finding support and resistance levels: pivot points.To get more news about forex pivot point calculator, you can visit wikifx.com official website.

Pivot points are a technical indicator that traders use to predict upcoming areas of technical significance, such as support and resistance. They're calculated by averaging the high, low and closing prices of a previous period. That could be a day, a week or a month.
If a market is trading above its previous pivot point (known as P), it is seen as a bullish signal. If it is below, it is bearish.

Day traders often use this as a method of spotting short-term trends. For instance, if EUR/USD is trading above P from the previous day, they may decide that it will continue to climb – and look to buy the pair.
The pair is trading below its previous day's P, which offers a short-term signal that a bear run may be forming. You decide to short EUR/USD at its current rate.

You could aim for S1, S2 or S3 as a profit target. Just like other support levels, these would be seen as stronger if the market has bounced off them before. If S1, S2 or S3 lines up with a previous support area, it could make for a good target.

Alternatively, you could wait for EUR/USD to bounce off support (at, say, S1) and buy the reversal. If you did this, P or R1 might make a good profit target.
Calculating pivot points
You don't need to calculate pivot points manually when trading on the FOREX.com trading platform. To view them on a chart simply log in, select your market and pick 'pivot points standard' from the list of indicators.
The London session is still the most liquid of all sessions traded, specially during its start and during the overlap period with the start of the New York session. You want to calculate your pivots points using the GMT session high, low and close. Why? Much like any Support or Resistance level created during a high liquid session, the highs and lows of the day are more significant during these hours.

2. Just like all traditional S&R price levels, the pivot levels can reverse roles also. An old resistance can turn into a new support once it is violated, and vice versa.

3. You can also use indicators (Bollinger Bands, Stochastics, RSI, Commodity Channel Index etc.) to time your entries around these levels. A very useful print is the 161,8% extension of the Fibonacci tool: when this level matches with one of the S&R pivot levels, price is likely to be attracted by this confluence. This is specially helpful for breakout trades making them much more effective. Pivot points act as veritable price magnets for the next day's trading.

4. Pivot points can also be used on weekly and monthly charts to get a perspective of where price is trading in reference to the previous week's or month's price range.

5. Any long term pivot point (weekly and monthly) which has not been touched by price for a large period of time gains attractiveness as a target level for counter trend moves. So if you don't feel comfortable with all the trend following techniques mentioned, this one is for you.

6. On high volatile market conditions, a break of the first support or resistance pivot level will mostly lead to a move to the next level (S2 and R2 respectively). This phenomenon is observed in pairs with higher volatility as well.