Pivot points are one of the most popular and widely used technical analysis tools in the forex market. They are used by traders to identify key levels of support and resistance, as well as potential entry and exit points for trades. Pivot points are calculated using price data from the previous trading day, and they are typically used on daily, weekly, and monthly charts. However, they can also be used on shorter timeframes, such as the 4-hour chart. In this article, we will discuss how pivot points are calculated on a 4-hour chart and how traders can use them to enhance their trading strategies.
What are Pivot Points?
Pivot points are mathematical calculations that are used to determine the overall trend of a market. They are based on the high, low, and closing price of the previous trading day. Pivot points are used to identify important levels of support and resistance, which are key areas where traders can look for potential trade opportunities.
How are Pivot Points Calculated on a 4-Hour Chart?
To calculate pivot points on a 4-hour chart, traders can use the same formula that is used for daily pivot points. The formula is as follows:
Pivot Point (PP) = (High + Low + Close) / 3
Support 1 (S1) = (2 x PP) – High
Support 2 (S2) = PP – (High – Low)
Support 3 (S3) = Low – 2 x (High – PP)
Resistance 1 (R1) = (2 x PP) – Low
Resistance 2 (R2) = PP + (High – Low)
Resistance 3 (R3) = High + 2 x (PP – Low)
In this formula, the High, Low, and Close prices refer to the prices from the previous 4-hour trading session. The Pivot Point (PP) is the central level that is used to identify potential support and resistance areas, while the Support 1 (S1), Support 2 (S2), and Support 3 (S3) levels are used to identify potential areas of support. Similarly, the Resistance 1 (R1), Resistance 2 (R2), and Resistance 3 (R3) levels are used to identify potential areas of resistance.
How to Use Pivot Points on a 4-Hour Chart
Traders can use pivot points on a 4-hour chart in several ways to help them identify potential trade opportunities. Here are some of the most common strategies that traders use:
1. Trading the Bounce: Traders can use pivot points to identify potential areas of support and resistance. If the price bounces off a support level, traders can look for a long trade opportunity, while if the price bounces off a resistance level, traders can look for a short trade opportunity.
2. Breakout Trading: Traders can also use pivot points to identify potential breakout levels. If the price breaks above a resistance level, traders can look for a long trade opportunity, while if the price breaks below a support level, traders can look for a short trade opportunity.
3. Trading the Range: Traders can use pivot points to identify potential trading ranges. If the price is trading between the support and resistance levels, traders can look for range trading opportunities, buying at the support level and selling at the resistance level.
4. Using Pivot Points with Other Indicators: Traders can also use pivot points in conjunction with other technical indicators, such as moving averages, to confirm potential trade opportunities. For example, if the price bounces off a support level and the 50-day moving average is also pointing upwards, traders can look for a long trade opportunity.
Conclusion
Pivot points are a powerful technical analysis tool that can be used on a 4-hour chart to identify potential trade opportunities. By calculating the Pivot Point, Support, and Resistance levels, traders can identify key levels where the price is likely to bounce or break out, and use this information to enhance their trading strategies. Whether you are a beginner or an experienced trader, pivot points can be a valuable addition to your trading toolbox.