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What is forex pivot point?

Forex pivot point is a popular trading tool used by traders to determine potential support and resistance levels in the market. Pivot points are calculated using the previous day’s high, low, and closing prices, and are used to identify potential price levels where the market may reverse or break out. Pivot points are widely used in technical analysis to help traders make informed trading decisions.

The concept of pivot points was first introduced by floor traders on the stock exchange. These traders used pivot points to determine key levels of support and resistance for the day’s trading session. The pivot point was calculated based on the previous day’s high, low, and closing prices. Traders would then use this pivot point to identify potential trading opportunities for the day.

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In forex trading, pivot points are calculated using the same formula as in stock trading. The pivot point is calculated as the average of the previous day’s high, low, and closing prices. The support and resistance levels are then calculated based on this pivot point.

There are several different types of pivot points that traders can use. The most common type is the standard pivot point, which is calculated based on the previous day’s high, low, and closing prices. Other types of pivot points include Fibonacci pivot points and Camarilla pivot points.

Fibonacci pivot points are calculated based on the Fibonacci sequence, a mathematical sequence of numbers where each number is the sum of the previous two numbers. Fibonacci pivot points are used to identify potential support and resistance levels based on the Fibonacci levels.

Camarilla pivot points are calculated using a specific formula that takes into account the previous day’s high, low, and closing prices, as well as the range of the previous day’s trading session. Camarilla pivot points are used to identify potential support and resistance levels based on the range of the previous day’s trading session.

Traders can use pivot points in a variety of ways. One common strategy is to use pivot points to identify potential entry and exit points for trades. Traders may look for price action around pivot points, such as a break above or below a pivot point, to enter or exit trades.

Another strategy is to use pivot points in conjunction with other technical indicators, such as moving averages or oscillators, to confirm potential trading opportunities. For example, if the price breaks above a pivot point and the RSI indicator is showing bullish divergence, this may be a strong signal to enter a long trade.

Pivot points can also be used to identify potential stop loss and take profit levels for trades. Traders may place stop loss orders below or above pivot points, depending on the direction of the trade. Take profit orders can be placed at potential resistance levels identified by the pivot points.

In conclusion, forex pivot points are a popular trading tool used by traders to identify potential support and resistance levels in the market. Pivot points are calculated using the previous day’s high, low, and closing prices, and can be used to identify potential entry and exit points for trades. Traders can use pivot points in a variety of ways, including in conjunction with other technical indicators, to make informed trading decisions.

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