Forex trading is a popular investment option for people who want to earn profits by trading currencies. There are many strategies that traders can use to earn profits in Forex trading, and one of the most popular ones is pivot point trading. Pivot point trading involves using pivot points as levels of support and resistance in the market, to help traders make informed decisions about entering and exiting trades.
What are Pivot Points?
Pivot points are levels on a price chart where the price tends to reverse, or at least show some resistance before continuing in the same direction. Pivot points are calculated based on the average of the high, low, and closing prices of the previous trading day. Once pivot points are calculated, traders can use them as levels of support and resistance in the market.
There are several types of pivot points, including standard pivots, Fibonacci pivots, and Camarilla pivots. Each type of pivot point has its own unique formula for calculation, and traders can choose which type of pivot point to use based on their trading style and preferences.
How to Trade Pivot Points?
Trading pivot points involves using the levels of support and resistance provided by the pivot points to determine entry and exit points for trades. Traders can use pivot points in a number of different ways, including:
1. Trading Breakouts: When the price breaks through a pivot point level, it can signify a change in market sentiment, which can provide an opportunity for traders to enter a trade in the direction of the breakout.
2. Trading Reversals: If the price approaches a pivot point level and shows signs of reversal, such as a doji candlestick pattern, traders can enter a trade in the opposite direction of the previous trend.
3. Trading Bounces: If the price approaches a pivot point level and bounces off it, traders can enter a trade in the direction of the previous trend.
Traders should always use other technical indicators and analysis tools in conjunction with pivot points to make informed trading decisions. Traders should also use stop-loss orders and risk management strategies to minimize losses and protect their capital.
Conclusion
Pivot point trading is a popular strategy in Forex trading, as it provides traders with levels of support and resistance to help them make informed trading decisions. Pivot points can be used in a variety of ways, including trading breakouts, reversals, and bounces. Traders should always use other technical indicators and analysis tools in conjunction with pivot points to make informed trading decisions, and should use stop-loss orders and risk management strategies to minimize losses and protect their capital.
