What are pivot points in forex trading?
Pivot points are support and resistance lines calculated using the previous period’s low, high and close values. These values give you the current period’s support and resistance lines which can be used to enter or exit forex trading. The period can be hourly period or daily period or weekly period or monthly period.
What does pivot points consists of?
Pivot points consist of mainly three things.
- Pivot line
- Support lines
- Resistance lines
Pivot Points Support and Resistance Lines
For drawing the pivot points mainly previous periods trading ranges are used. For example previous day’s range is used for drawing the daily pivot lines. Previous week’s range is used for drawing the weekly pivot lines. Previous month’s range is used for drawing the monthly pivot lines.
Example: EURUSD Daily Pivot Points
Check the following picture. The following is the EURUSD hourly chart on which daily pivot points are drawn. You can see the pivot point, support and resistance lines.
Daily Pivots on Hourly Chart - EURUSD Example
Example: GBPUSD Weekly Pivot Points
The following is the daily chart of GBPUSD currency pair on which weekly pivot lines are drawn. You can see the weekly pivot point, support and resistance lines.
Weekly Pivots on Daily Chart - GBPUSD Example
Why to use pivot points in forex trading?
To determine the support and resistance levels: Pivot points mainly give you the support and resistance lines which can be used to enter or exit trades.
Leading Indicator: Most of the indicators are lagging indicators that mean they give trading signals when the price action is already happened. One of the examples is moving averages. Most of the traders use moving averages crossovers but the crossovers occur after the price already started reversing.
But pivot points is a leading indicator. It gives the price range for the current period. It gives you an idea of where the price can trade up to, which give traders an immense help in setting up the trades and exiting trades.
Easy to calculate: Pivot points are very easy to calculate. It just uses the previous period’s high, low and close prices. For examples to calculate the daily pivot points previous day’s high, low and close prices are used. To calculate the weekly pivot points previous week’s high, low and close prices are used. To calculate the monthly pivot points previous month’s high, low and close prices are used.
Pivot Points in Forex Trading
Calculating Pivot Points
Methods to Calculate Pivot Points
Trading Pivot Points
Metatrader Pivot Point Indicators
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