Pivot in Forex: Understanding the Concept
Pivot points are a popular tool used by traders in the foreign exchange (Forex) market. A pivot point is defined as a technical analysis indicator used to determine the overall trend of the market over different time frames. Pivot levels are calculated using the previous day’s high, low and closing prices. Pivot levels are used to identify potential support and resistance levels on a chart, as well as to determine the overall trend of the market.
Pivot levels are widely used by traders in the Forex market because they provide a simple and effective way to identify potential entry and exit points. Pivot levels are calculated using a simple formula that takes into account the previous day’s high, low, and closing prices. This formula can be used on any time frame, from a one-minute chart to a monthly chart.
There are three primary pivot levels that are used by traders. These levels are known as the pivot point, support level, and resistance level. The pivot point is the central level that is used to determine the overall trend of the market. The support level is the level below the pivot point, and it is used to identify potential buying opportunities. The resistance level is the level above the pivot point, and it is used to identify potential selling opportunities.
The pivot point is calculated by adding the previous day’s high, low, and closing prices together and dividing the sum by three. The support and resistance levels are then calculated using the pivot point. The first support level is calculated by subtracting the previous day’s high from twice the pivot point. The second support level is calculated by subtracting the previous day’s high from the pivot point and adding the difference to the first support level. The first resistance level is calculated by subtracting the previous day’s low from twice the pivot point. The second resistance level is calculated by subtracting the previous day’s low from the pivot point and adding the difference to the first resistance level.
Pivot points can be used to identify potential support and resistance levels on a chart. When the price is trading above the pivot point, it is considered to be in an uptrend. When the price is trading below the pivot point, it is considered to be in a downtrend. The support and resistance levels can be used to identify potential entry and exit points. When the price is trading near a support level, it is considered a potential buying opportunity. When the price is trading near a resistance level, it is considered a potential selling opportunity.
There are several different ways to use pivot points in the Forex market. Some traders use pivot points as a standalone indicator, while others use them in conjunction with other technical indicators. Pivot points can also be used to identify potential profit targets and stop-loss levels. When the price reaches a pivot level, it is often a good idea to take profits or move your stop-loss to break even.
In conclusion, pivot levels are a popular tool used by traders in the Forex market. Pivot levels are calculated using the previous day’s high, low, and closing prices. Pivot levels are used to identify potential support and resistance levels on a chart, as well as to determine the overall trend of the market. Pivot points can be used as a standalone indicator or in conjunction with other technical indicators. Pivot points can also be used to identify potential profit targets and stop-loss levels. If used properly, pivot points can be a valuable tool for traders in the Forex market.
