Pivot points are one of the most widely used technical analysis tools in the forex market. They are used to identify potential support and resistance levels in the market and to determine potential entry and exit points for trades. Pivot points are calculated using a mathematical formula that takes into account the high, low, and close price of a particular time period. In this article, we will explain how pivot points are calculated in the forex 4-hour chart.
The 4-hour chart is one of the most popular timeframes used in forex trading. It offers a good balance between the short-term volatility of the 1-hour chart and the longer-term trend of the daily chart. Many traders use pivot points on the 4-hour chart to identify potential support and resistance levels for the next trading day.
To calculate pivot points on the 4-hour chart, we need to start by identifying the high, low, and close price of the previous trading day. We can then use this data to calculate the pivot point and the support and resistance levels for the next trading day.
The pivot point is the central point of the pivot point levels. It is calculated by adding the high, low, and close price of the previous trading day and dividing the total by three. The formula for calculating the pivot point is as follows:
Pivot Point = (High + Low + Close) / 3
Once we have calculated the pivot point, we can then calculate the support and resistance levels. The first level of support and resistance is calculated using the pivot point and the high and low price of the previous trading day. The formula for calculating the first level of support and resistance is as follows:
First Level of Support and Resistance = (2 x Pivot Point) – High (for support) or Low (for resistance)
The second level of support and resistance is calculated using the pivot point and the high and low price of the previous trading week. The formula for calculating the second level of support and resistance is as follows:
Second Level of Support and Resistance = (Pivot Point – First Level of Support and Resistance) + High (for resistance) or Low (for support)
The third level of support and resistance is calculated using the pivot point and the high and low price of the previous trading month. The formula for calculating the third level of support and resistance is as follows:
Third Level of Support and Resistance = (2 x Pivot Point) – Low (for support) or High (for resistance)
Once we have calculated the pivot point and the support and resistance levels, we can use them to identify potential entry and exit points for trades. If the market is trading above the pivot point, we can look for long trade opportunities at the support levels. If the market is trading below the pivot point, we can look for short trade opportunities at the resistance levels.
In conclusion, pivot points are an important tool for forex traders to identify potential support and resistance levels in the market. They are calculated using a mathematical formula that takes into account the high, low, and close price of a particular time period. On the 4-hour chart, pivot points are calculated using the high, low, and close price of the previous trading day and can be used to identify potential entry and exit points for trades.
