Forex pivot points are a popular trading tool used by traders to identify potential price movements in the forex market. Pivot points are calculated using the previous day’s high, low, and closing price, and are used to predict potential support and resistance levels for the current day’s trading.
In essence, a forex pivot point is a technical indicator that helps traders identify potential levels of price support and resistance in the market. Pivot points are calculated based on the previous day’s trading range, and are used to help traders identify potential entry and exit points for trades.
To calculate pivot points, traders use a formula that takes into account the previous day’s high, low, and closing price. The formula is simple:
Pivot Point = (High + Low + Close) / 3
Once the pivot point is calculated, traders can then use the formula to calculate potential levels of support and resistance for the current day’s trading. The formula for calculating support and resistance levels is as follows:
Support 1 = (2 x Pivot Point) – High
Resistance 1 = (2 x Pivot Point) – Low
Support 2 = Pivot Point – (High – Low)
Resistance 2 = Pivot Point + (High – Low)
Support 3 = Low – 2(High – Pivot Point)
Resistance 3 = High + 2(Pivot Point – Low)
The first level of support and resistance is calculated using the pivot point and the previous day’s high and low. The second level of support and resistance is calculated using the pivot point and the difference between the previous day’s high and low. The third level of support and resistance is calculated using the previous day’s high, low, and pivot point.
Traders use forex pivot points to identify potential entry and exit points for trades. When the price of a currency pair is trading above the pivot point, traders will look for opportunities to buy the currency pair. When the price is trading below the pivot point, traders will look for opportunities to sell the currency pair.
In addition to identifying potential entry and exit points, forex pivot points can also be used to identify potential stop loss and take profit levels. Traders can use the support and resistance levels calculated by the pivot point formula to set stop loss and take profit levels for their trades.
One of the biggest benefits of using forex pivot points is that they can help traders identify potential levels of support and resistance in the market. This can be particularly useful for traders who are looking to trade breakouts or reversals in the market.
Another benefit of using forex pivot points is that they can be used in conjunction with other technical indicators to confirm potential entry and exit points for trades. For example, traders may use the pivot point levels in combination with moving averages, trend lines, or other technical indicators to help confirm potential trade setups.
In conclusion, forex pivot points are a popular trading tool used by traders to identify potential levels of support and resistance in the market. They are calculated using the previous day’s high, low, and closing price, and can be used to help traders identify potential entry and exit points for trades. Pivot points can also be used in conjunction with other technical indicators to confirm potential trade setups.
